Verizon Stock Did Nothing in 2020. It Needs to Show 5G Progress Next Year. – Barron’s

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With the year almost over, were taking a look at all 30 stocks in the Dow Jones Industrial Average, starting with the worst performers Boeing and Walgreens Boots Alliance and working our way up to the highest-flying stock in the benchmark Apple. The ranking may shift before the close of 2020 trading, but the stories behind the stocks shouldnt.

Verizon Communications (ticker: VZ) stock did a whole lot of nothing in 2020. Its ending the most eventful year in memory for the stock market just where it started, at around $60 a share. Including dividends, Verizon has earned its shareholders about 1% this year, versus a return of more than 8% for the Dow.

That performance surely has some investors wishing for more. For others, Verizon stock did exactly what it was supposed to in 2020. The U.S. wireless industry is a stable, mature, and defensive business. When markets were tumbling, a pandemic was raging, and the economy dropped into recession, investors looked to stocks like Verizon to provide some stability and certainty of profits.

Simply put, Verizon isnt likely to grow much faster than the broader economy. It isnt likely to shrink either. Even during the Covid-19 recession, phone-obsessed Americans have been loath to cancel their talk and data plans. The stock sports a dividend yield of 4.3% annually thats easily covered by the companys cash flows.

Management at Verizon and its wireless competitors AT&T (T) and T-Mobile US (TMUS) are bullish on the shift to next-generation 5G networks, believing it could ignite wireless industry growth in 2021 and beyond. But investors clearly need some convincing.

Verizon expects 5Gwhich promises faster data speeds, lower latency, and greater capacity in dense areasto begin to materially impact its revenues this coming year. The service is only available on Verizons top-tier plans that include unlimited data and other perks, so customers who want 5G will need to trade up to those more-expensive subscriptions. That means more revenue without having to win new customers.

Verizon also offers a 5G Home wireless internet service in about 10 markets that it will continue adding to in 2021. Thats an entirely new line of business for the company, and another opportunity to leverage excess capacity on its new 5G network. Further out, Verizon expects additional sales of mobile-edge computing services, which are essentially miniature data centers distributed around the network.

Wall Street analysts see Verizons revenues hitting $132.9 billion next year. Thats about $2 billion more than in 2018, three years earlier.

In the second half of 2020, Verizon should complete its acquisition of TracFone, a large prepaid mobile virtual network operator. Thats expected to immediately contribute to earnings, with additional benefits to Verizon over time as it presumably becomes TracFones exclusive network in the future.

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The first catalyst for Verizon stock in 2021 may be the conclusion of the C-Band wireless spectrum auction, which was on track to attract record bidding before it paused for the holidays. Verizon needs additional mid-band spectrum to keep up with competitors in the 5G race, and investors shouldnt be surprised by a price tag of tens of billions of dollars. That will add to Verizons debt load, but it has the balance sheet capacity and ultralow interest rates mean the cost wont detract much from earnings.

Extra borrowings could keep at bay any plans to resume share buybacks until 2022 or 2023, however. Accordingly, analysts dont see much earnings per share growth for Verizon in the coming years. The consensus forecast is for $4.94 in 2021 and $5.02 in 2022. Those compare with $4.81 in 2019 and an estimated $4.76 this year.

Overall, Wall Street analysts are lukewarm on Verizon. None rate the stock Sell, but only 37% of analysts recommended buying Verizon. The remaining nearly two-thirds of analysts have a Hold or equivalent rating. Their average target price is $62.42, about 6% above the stocks recent $59.

Write to Nicholas Jasinski at nicholas.jasinski@barrons.com

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Verizon Stock Did Nothing in 2020. It Needs to Show 5G Progress Next Year. - Barron's