Verizon: Cheaper Than AT&T After Weak Q3, Potentially Unfairly

(Preview) Company Update (VZ US) (Neutral)

Summary

• Verizon shares are near their 5-year low, having lost 12.5% since our downgrade in July, underperforming AT&T shares by 18 ppt.

• Verizon's EBITDA had grown less than AT&T's in recent quarters, but partly because the latter had fallen more in 2021.

• AT&T's faster EBITDA growth has largely been driven by its wireless business, which we believe is benefiting from past promotions.

• Verizon is now following with its promotions and cost cuts, and the risk of a mutually-destructive price war is real.

• Verizon is now cheaper than AT&T, with a similar 7.4x P/E and a higher 6.8% Dividend Yield. However, we would avoid both stocks.

Introduction

We review our Hold rating on Verizon Communications Inc. after shares remain near their 5-year low in October (just after Q3 results on October 21), and 37% below the level at the start of 2020.

Verizon shares have lost 12.5% (after dividends) since our downgrade in July, an 18 ppt underperformance compared to shares in AT&T, Verizon’s main competitor.

Verizo…