Verizon: Worth The Wait

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Verizon Communications (VZ) was the first to prove the potential of 4G wireless. So when rival T-Mobile US (TMUS) appeared to take the lead in rolling out 5G, many have assumed the company has passed the torch of industry leadership, suggests.

That belief shows up in Verizon’s heavily discounted multiple of 10.4 times expected next 12 months earnings versus T-Mobile’s 54.3 times. But there are clear signs the balance of power is shifting, as Verizon’s longer-to-deploy version of 5G technology based on millimeter-wave begins to reach critical mass.

The tipping point: Verizon’s widely panned but highly successful bids for the C-band spectrum earlier this year. Coupled with optimizing the fiber broadband Fios network, the added capability has again landed its network atop quality ratings from JPower and RootMetrics.

That’s now translating into 5G uptake. Management estimates 20 percent of its wireless customers already use 5G devices that are mostly C-band capable. And the company is seeing accelerating customer growth (1.7 million gross adds in Q2) while cutting churn to record lows and moving more users to unlimited data plans (69 percent of users at end Q2).

The upshot was the acceleration in Q2 wireless revenue growth for America’s largest provider to 5.4 percent, well above management’s previous guidance. And growth also extends to the long-shrinking business-to-business division (up 3.7 percent), with the company now taking share from rivals.

These favorable trends induced management to raise 2021 full-year revenue growth guidance by nearly a percentage point and the mid-point of its earnings forecast range to $5.30 from $5.10 this month.

That’s the biggest upward revision in some time. And odds are there are more big boosts in-store, as Verizon expands 5G coverage some estimate currently reaches just 51 percent of the country.

Closing the sale of the media division for $5 billion is a potential upside catalyst for later this year. So is winning regulators’ approval of the proposed purchase of America Movil’s (AMX) US prepaid unit TracFone.

But the bottom line is Verizon is slowly but surely proving its business case. And the more the company shows itself as the "Tortoise" to T-Mobile’s "Hare" in the 5G race, the bigger returns will grow for patient investors. Buy up to $65.

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