Verizon Communications (NYSE: VZ) generates nearly two-thirds of its revenue from the wireless business. The segment has performed well over the years, helping the communications giant stay resilient to competition and the rapid transformation the sector is witnessing. Most of the analysts following the tech firm have been bullish about its future prospects, and the positive sentiment has translated into a steady uptick in market value.
However, things didn’t look very encouraging when the company reported its second-quarter results last month as the wireless segment stagnated – after expanding for several quarters – causing apprehension as to whether it would bounce back in the second half of the year. Nevertheless, Verizon’s stock is probably going to scale new heights after hitting a peak last week.
A Wise Bet
With the next earnings report scheduled for October 25, Verizon is poised to bring solid returns for shareholders in the next few weeks, and maybe beyond that also. At $65, the 12-month average price target set by analysts represents a 7% premium to this week’s opening price, which also justifies the buy rating on the stock.
A more compelling factor that makes Verizon a wise bet is the 2% dividend hike the company announced at the beginning of the month, after doing so in each of the past 12 years. Currently, the stock’s annual return is nearly three times higher than that of the S&P 500.
Pros Outweigh Cons
Though the company’s high debt could be a dampener while considering it for long-term investment, the strong fundamentals and healthy cash flow outweigh the risk. Also, once the much-hyped 5G deployment gathers steam, it will put the company at an advantageous position in terms of customer growth, despite facing stiff competition from AT&T (T). Since the future of Verizon’s wireless business is dependent on the effectiveness of its high-speed network, 5G will be the core of the company’s strategy going forward.
Jaunt XR Deal
In a sign that the management is betting big on the 5G network, Verizon this week announced the acquisition of Jaunt XR, a start-up specialized in augmented reality technology that can be used for creating and distributing virtual reality content on a large scale.
Verizon’s shares outperformed the market throughout last year and so far this year. They reached a peak last week after witnessing significant volatility since the beginning of the year. In the past twelve months, the stock gained about 10%.