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Verizon’s Q4 Results Divide Analysts On Wall Street

January 23, 2016 - Written By Kishalaya Kundu

Verizon may have come out with a decent set of numbers as part of its Q4 earnings call last Thursday, but that has only helped divide analysts about the prospects of America’s largest wireless carrier in the near future. While analysts at Wells Fargo gave the company a thumbs up and are currently recommending the stock to their clients, those over at New Street Research aren’t so sure about it. Analysts at the later company apparently believe that the carrier may well face capacity constraint soon, as data usage is increasing rapidly amongst mainstream wireless subscribers. The firm says that its concerns stem from the fact that Verizon has the least network capacity per subscriber, compared to its three nearest rivals – AT&T, T-Mobile and Sprint.

According to a report published by New Street, “Verizon has to either double capacity or halve share”, and given that reducing market share intentionally is not an option, the company is now heavily reliant on being able to get its hands on the spectrum assets currently owned by DISH Network. Ominously for Verizon and its investors, the report concluded, “We would continue to avoid the stock”. New Street, meanwhile, isn’t alone in its dismal outlook for Verizon. The company’s doom-and-gloom theory finds an echo from analysts over at Jefferies, who have already warned that Verizon’s new contract-free plans have started affecting its bottom line. The investment banking firm is worried that Verizon’s “ARPA declined 6.6 percent (in Q4), an acceleration from the 5.5 percent decline in 3Q … and off-contract customers opting into lower pricing”.

Meanwhile, even analysts at Wells Fargo, while maintaining their positive outlook on the Verizon stock, have recently lowered their target to the $50-$52 mark from the earlier guidance of $54-$56 per share. The stock closed at $47.05 on Friday at the NYSE. In a research note published recently, the banking and financial services company praised Verizon, saying that the company’s “Q4 report showed disciplined and balanced growth highlighted by strong margins and customer metrics in its wireless segment … we continue to favor VZ in these volatile markets for its strong free cash flow generation, attractive dividend yield and high-quality customer base”. The firm, however, pointed out a few of the challenges it expects Verizon to face this year.

According to the company, “the transition toward wireless installment plans, the divestiture of wireline properties to Frontier, the ramp of emerging Internet of Things and mobile video businesses” are some of the most important obstacles that Verizon will have to navigate successfully, if it has to retain its position as the country’s most preferred wireless carrier. The company announced its Q4, 2015 results on Thursday, which revealed that the churn rate has gone down to as low as 0.96 percent. With 1.52 million net subscriber adds and $23.7 billion in wireless revenues, the company’s Q4, 2015 results were an improvement over the same period in 2014. Verizon has also claimed that it will be the first company in the country to launch 5G services, and that it won’t bring back unlimited data anytime soon, even though, its largest rival, AT&T, recently did just that for its Pay TV subscribers.