J.P. Morgan media analyst Philip Cusick lowered his fourth quarter broadband subscriber growth estimates for Verizon Communications on Wednesday, but maintained his “overweight” rating and $62 per share price target on the stock.
In a research note Dec. 22, Cusick wrote that he now expects Verizon to add about 70,000 Fios broadband customers in Q4 -- down from previous estimates of 80,000 customer additions. He also lowered his consumer wireless customer expectations in the quarter to about 575,000 additions, down from the previous mark of 600,000 additions.
Verizon stock was relatively unaffected by the change in estimates, priced at $52.68 per share in afternoon trading Dec. 22, down 10 cents (0.18%) each.
Analysts across the board have rejiggered their broadband subscriber growth estimates for cable and telco service providers alike, as record growth rates during the height of the pandemic are expected to slow substantially.
Cusick attributed his lower estimates to recent comments by Verizon executives at industry conferences, continued low move activity and potentially higher involuntary churn after New York state ended its COVID-19 related utility service (including broadband) shutoff moratorium on Dec. 21. The state still offers financial assistance and consumer protections to help consumers maintain services and pay off accumulated charges.
On the wireless front, Cusick wrote that competition remains high, and although he expects business wireless customers to increase in the quarter -- he raised business net estimates to 200,000 from 175,000 customers -- he anticipates residential growth will be lower -- about 375,000 additions instead of the previous estimate of 450,000 additions.
“The wireless consumer competitive environment remains high, and it sounds like store traffic, while good, has not been robust, but small business formation and enterprise continue to see positive trends,” Cusick wrote.
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The J.P. Morgan analyst also believes that while the recent completion of Verizon’s purchase of prepaid wireless provider Tracfone will add substantial incremental service revenue, it will be offset by increased investment.
Tracfone has about 20 million subscribers, 13 million of which are already on Verizon’s network. In his note, Cusick added an incremental $15 in ARPU for those customers, while the 7 million Tracfone customers on competitive platforms, he added in $30 of ARPU. Cusick’s revenue estimates for the partial quarter -- the deal was closed in November -- are about $500 million in incremental service and around $125 million in adjusted EBITDA for Tracfone in Q4. For 2022, Cusick estimates Tracfone will add about $4.8 billion in incremental service revenue from Tracfone and $1.2 billion in EBITDA.
“We expect to see more Tracfone-branded dealers over time challenging Cricket and Boost – and could see a turn in prepaid sub trends to positive but don’t look for that now,” Cusick wrote. ■
