Editor’s Note: This analysis was originally published as a stock note by Morningstar Equity Research.
Verizon Communications VZ posted solid first-quarter financial results amid weak customer metrics. Wireless service revenue increased 2.7% compared with a year ago, despite the loss of 289,000 net postpaid wireless phone customers during the quarter. EBITDA increased 4%, the fastest pace in nearly four years.
Why it matters: Verizon provided the first look at the US wireless industry since the firm warned of increased competition earlier in the year. We don’t see much cause for concern yet. The company reiterated 2025 expectations, including 8.0 million-8.5 million postpaid phone additions across the industry.
The pace of postpaid phone customer defections, or churn, reached a decade high at 0.95% per month versus 0.89% a year ago. Verizon claims the increase was contained to customer groups that saw price increases at the start of the year, where the impact was worse than expected.Postpaid phone gross adds were flat versus a year ago, but introducing a three-year price and phone upgrade guarantee has spurred growth in April. Verizon is confident in the profitability of these offers, but we remain concerned that slowing industry growth will tempt more generous offers.
The bottom line: Our fair value estimate remains USD 53, and we think the shares are attractive. We also reiterate our narrow moat rating. While the near term might be bumpy, we expect US wireless competition will remain rational.
Verizon increased revenue per residential postpaid wireless account by 3.6% year over year, a bit slower than last year (around 4.4%), but still solid in our view. We estimate that pricing and upselling to premium plans continue to drive about 80% of this growth.The prepaid business continues to decline but showed good improvement.
Between the lines: Verizon doesn’t expect tariffs to meaningfully impact its network plans. The firm also believes it can pass any phone tariffs on to customers, remaining disciplined with its offers. We expect the other major carriers to share similar thoughts.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
