Communications giant Verizon $VZ reports its Q2 earnings next week – July 24 – with Wall Street analysts becoming increasingly worried about the impact of competition from Elon Musk’s newly listed SpaceX $SPCX.
VZ’s share price is up 10.4% in the year-to-date, helped by its cost-cutting program to boost efficiencies and M&A such as its $20 billion purchase of fiber-optic internet provider Frontier Communications.
Wall Street expects Verizon to report earnings per share of $1.28 in Q2, up from the $1.22 it reported in the same period last year. Revenues are tipped to come in at $35.23 billion, up from $34.44 billion last time.
What Do Analysts Say?
Scotiabank Four-star TipRanks-rated analyst Maher Yaghi recently lowered his price target to $51.50 from $54.50 but kept an Outperform rating on the stock. It came as part of a report into the telecommunication services sector. Yaghi said he was adjusting some multiples on these stocks down to “investor trepidation to increased satellite competition”. However, he said he continues to favor Verizon in the sector.
The competition is likely to refer to the continued expansion of Elon Musk’s Starlink satellite services. Its growth is set to be rocket-fueled by the recent IPO of parent company SpaceX $SPCX.
Indeed, Bernstein analyst Laurent Yoon gave a similar reasoning after lowering his price target on VZ to $44 from $49, keeping a Market Perform rating on the shares.
“While SpaceX’s Starlink is unlikely to have a substantial near-term impact for telecom companies, it represents another competitor in an already mature and highly penetrated broadband market,” he said. Yoon believes the presence of Starlink implies subscriber gains for one provider will increasingly come at the expense of another, making market share shifts more consequential. “Uncertainty surrounding Starlink is unlikely to be resolved anytime soon,” he said.
There has been much industry commentary about whether Starlink would be forming an MVNO – Mobile Virtual Network Operator – partnership with a major telecoms company or operate as an independent mobile carrier. Indeed, SpaceX is reportedly now considering launching a Starlink retail product and could build its own terrestrial U.S. mobile network.
Five-star TipRanks-rated Wells Fargo analyst Steven Cahall believes Verizon has “the most to lose and the most to gain from an MVNO with Starlink,” applying a 40% probability to such a deal. He noted that a VZ-Starlink Mobile MVNO “would be mid-to-high single digit percentage accretive to EBITDA/EPS by 2032.”
He recently initiated Verizon at Equal Weight with a $43 price target and named it Wells Fargo’s most preferred telco.