We recently compiled a list of the 10 Best Telecom Stocks To Buy Right Now. In this article, we are going to take a look at where Verizon Communications Inc. (NYSE:VZ) stands against the other telecom stocks.
The telecommunications industry is at a critical juncture as it navigates an era of rapid technological advancement and escalating data demands. Over the coming years, global data consumption is expected to surge dramatically, nearly tripling from 3.4 million petabytes (PB) in 2022 to 9.7 million PB by 2027. This massive increase is driven largely by the growing consumption of video content, which will account for approximately 79% of this data. Despite this exponential rise in data usage, telcos face a challenging financial landscape. Revenue growth from internet access is projected to remain modest, with a compound annual growth rate (CAGR) of only 4%, reaching $921.6 billion by 2027. This slow revenue growth contrasts with the substantial capital required for network upgrades and expansions.
According to PWC report “Perspectives from the Global Telecom Outlook 2023–2027”, to meet the rising data demand and stay competitive, telecommunications companies will need to invest heavily in infrastructure. The ongoing transition to 5G technology and the deployment of other advanced network standards will drive significant expenditures. By 2027, telcos are expected to invest around $342.1 billion in network enhancements. This includes the expansion of fibre networks and the adoption of Open Radio Access Networks (Open RAN), which aim to improve interoperability among devices and providers.
In response to these evolving demands, telcos are increasingly focusing on diversifying their service offerings beyond traditional connectivity. The Internet of Things (IoT) represents a major growth opportunity, with expectations for a substantial rise in connected devices. The number of IoT devices is projected to increase from 16.4 billion in 2022 to 25.1 billion by 2027. This growth will be driven by innovations in various sectors, including healthcare, where medical IoT devices are anticipated to double, reflecting a CAGR of 16.7%. The expansion of private 5G networks and edge computing services will further enhance the capabilities of telcos to meet the diverse needs of their business customers.
The shift towards advanced technologies like 5G presents both opportunities and challenges. The initial wave of capital expenditures on 5G infrastructure is nearing its peak, with future investments likely to focus on optimizing and scaling existing networks rather than extensive new deployments. This trend is expected to impact the financial strategies of telecom companies, as they will need to manage substantial investments while also seeking efficiencies and cost control. The growth in capital expenditure for 5G and fibre infrastructure will be accompanied by a rising focus on operational efficiency and monetization strategies.
In addition to network enhancements, telcos will need to foster collaboration across the broader ecosystem to thrive in this evolving landscape. Partnerships with technology providers, cloud services, and other stakeholders will be crucial for developing and delivering advanced services. Companies that excel in integrating these diverse technologies and creating seamless solutions will be better positioned to capture emerging opportunities in areas such as private networks and digital infrastructure.
The telecom industry is entering a period of significant transformation, characterized by rapid technological advancements and evolving consumer demands. To succeed, telcos must navigate the complex challenges of heavy investment requirements while exploring new growth avenues. Strategic partnerships, operational efficiency, and a focus on innovative technologies will be essential for companies aiming to excel in this competitive and dynamic environment.
Our Methodology
We used telecom sector ETFs plus online rankings to compile an initial list of the best telecom stocks to buy now. We narrowed our list to the 10 stocks that analysts see the most upside to. The list is sorted in ascending order of analysts’ average upside potential, as of August 13. Note: We only included companies whose primary business is in the telecom industry.
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Verizon Communications Inc. (NYSE:VZ)
Average Analyst Share Price Target Upside: 12.98%
Average Analyst Share Price Target: $45.78
Verizon Communications Inc. (NYSE:VZ) has an average analyst price target of $45.78, offering a potential upside of 12.98%, reflecting optimism about the company’s growth prospects. In a recent development, on August 13, Verizon, the Atlanta Hawks, and State Farm Arena announced a new partnership for the 2024-25 season. As the Official 5G Wireless and Technology Partner, Verizon will boost connectivity at the arena with advanced network upgrades. The partnership will improve fan experiences and streamline event access and concessions. Verizon has already installed extensive 4G LTE and 5G coverage throughout the arena. This collaboration aims to strengthen Verizon Communications Inc. (NYSE:VZ) ties with Atlanta and support the city’s cultural and sporting scene.
Verizon Communications Inc. (NYSE:VZ) offers a forward dividend yield of 6.56%, with an annual payout of $2.66 and a payout ratio of 57.83%. The company has a 5-year dividend growth rate of 1.99% and has increased its dividend for 19 consecutive years. On August 13, TD Cowen upheld its Buy rating and $51.00 price target for Verizon Communications (NYSE: VZ). Key updates from a recent investor meeting include Verizon’s cautious stance on AI phone upgrades and its plan to complete C-Band spectrum deployment by end-2025. Verizon Communications Inc. (NYSE:VZ) reported a 3.5% increase in wireless service revenue, a 69% rise in subscribers, and improved Q2 2024 adjusted EBITDA of $12.3 billion, alongside a $3.2 billion reduction in net unsecured debt.
Ariel Global Fund stated the following regarding Verizon Communications Inc. (NYSE:VZ) in its fourth quarter 2023 investor letter:
“Global communications and technology leader, Verizon Communications Inc. (NYSE:VZ) also traded higher in the period following solid earnings results, highlighted by postpaid consumer net additions and an upward revision to free cash flow guidance. From a competitive and financial standpoint, we view Verizon to be among one of the best positioned telecoms in the world. The company’s solid long-term fundamentals are underscored by its predictable, recurring revenue streams and ~7% dividend yield. At current levels, Verizon is trading near an all-time low valuation presenting a compelling total return story for patient investors.”
Overall VZ ranks 6th on our list of the best telecom stocks to buy. While we acknowledge the potential for VZ as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than VZ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.