Shares of Verizon Communications Inc. are on track for their worst annual performance on record following a string of subscriber losses that have prompted questions about the company’s promotional strategy and the strength of its network.
are down 27.3% so far in 2022, which would mark their worst annual percentage decline on record, according to Dow Jones Market Data. The performance is notable as shares of Verizon’s main peers have fared significantly better over the course of 2022: AT&T Inc.’s stock
is down just 2.3% thus far, while T-Mobile US Inc.’s
is up 22.0% and on track for its sixth double-digit annual gain in the past eight years.
Going back to 1983, there have been just three times when the spread between Verizon and AT&T shares was at least 25 percentage points in AT&T’s favor. The stocks are flirting with such a spread this year, with AT&T’s performance currently 24.99 points better than Verizon’s. Just once in that four-decade span did Verizon’s stock record a spread upward of 25 points in its own favor relative to AT&T, according to Dow Jones Market Data.
Wolfe Research analyst Peter Supino recently highlighted the “extraordinary relative stock performance” between Verizon and AT&T, noting a 29-point spread relative to AT&T since the start of April, as of the publication of his latest report.
Verizon’s stock has suffered amid three straight quarters of declines in retail postpaid phone subscribers, a key metric for wireless carriers. Verizon historically is known for having taken a more restrained approach to promotions relative to competitors, and the company also hiked prices toward the middle of the year on certain plans.
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But analysts generally see more to the story. For one, Verizon used to be seen as having the strongest network, which could help justify the company’s stance on promotions and pricing. In the 5G era, however, T-Mobile is viewed as having an advantage.
Are better days in store for Verizon? There may be some more near-term pain ahead, judging by Supino’s recent note to clients.
“With extremely cautious investor sentiment and deeply depressed valuation versus T and TMUS, our 4Q estimate changes are minor, but we see an obstacle ahead in rising rates & fading benefit of capitalized interest, which seem not fully reflected in estimates,” he wrote Wednesday. Supino rates the stock at peer perform.
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The spread between AT&T and Verizon shares has also been of interest to Craig Moffett, an analyst with SVB Securities. He chose similar words to Supino as he wrote that “the gap in relative performance has been absolutely extraordinary.”
In just five months, “Verizon has gone from trading at a premium P/E [price-to-earnings multiple] to AT&T to on par with it, and from trading at a lower yield than AT&T to a higher one,” he added.
Will that spread persist? Moffett’s recent ratings changes say no. He upgraded Verizon’s stock to market perform from underperform earlier in the week, while making the reverse move on AT&T’s stock.
Moffett had adopted that prior underperform stance on Verizon’s stock back in August amid fears of slowing industry growth, increased promotional activity in the wireless market, new competition from cable players and expected pressure on growth and free-cash flow.
“All these industry concerns remain precisely the same as we approach 2023… but valuations (and expectations) have changed dramatically since August. Verizon has fallen sharply on an absolute and relative basis as the intractability of Verizon’s Dilemma (excessively high prices and a weakening perceived network advantage, high leverage, and a stock market that has clearly panned their prioritization of cash flow over subscriber growth) have increasingly been incorporated into consensus expectations,” he wrote.
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Moffett doesn’t think much has changed for AT&T either, despite its stock’s outperformance.
“AT&T’s position is just as weak as it was before,” he wrote. “Instead, it is very likely an artifact of the rotation out of Verizon, which had minimal institutional sponsorship going into the summer, into AT&T, which had almost no institutional sponsorship at all.”