Churn Concerns Weigh On Verizon's Wireless Outlook Despite Financial Gains

Verizon Communications (NYSE:VZ) delivered an encouraging second-quarter performance, highlighted by healthy financial growth and a significant boost to free cash flow.

This stronger financial position is expected to accelerate debt reduction and provide the company with greater flexibility for future investments in fiber infrastructure or share buybacks.

However, the telecom giant faces ongoing challenges with wireless net additions and anticipates a more competitive landscape in 2025, with expectations for flat postpaid consumer phone customer growth.

Also Read: Verizon Beats Expectations, Boosts Outlook — Here’s Why Analysts Still See More Room To Grow

Morgan Stanley analyst Benjamin Swinburne maintained Verizon Communications with an Equal-Weight rating and raised the price forecast from $47 to $48 on Tuesday.

Swinburne highlighted that Verizon’s shares currently trade at a discount compared to many of its peers, reflecting a more tepid growth outlook.

The analyst noted that the second-quarter results and updated outlook were encouraging, as financial growth remains healthy and the lift to FCF from tax reform is even more significant than previously expected.

The latter point will allow Verizon to de-lever post Frontier faster than previously expected, he said, giving it additional capacity for incremental fiber builds and/or share buybacks.

However, the wireless net additions performance remains mixed and 2025 is shaping up as more challenging than initially thought, Swinburne noted.

The analyst forecasted roughly flat postpaid consumer phone customers in fiscal 2025 compared to fiscal 2024. He expects monthly postpaid phone churn to be up in the second half of 2025, reflecting the current competitive environment.

Swinburne noted that this higher churn is partially offset by the expectation that gross adds growth will remain healthy, as Verizon’s sales channels have been delivering this year.

As per the analyst, it will be challenging for Verizon shares to re-rate higher unless the financial growth and/or KPIs improve from current levels.

He also noted that broadband additions were lower than expected in second-quarter and have lowered our outlook. However, he expected Verizon to deliver on the 8-9mm FWA customer guidance by 2028.

A low housing growth and low move environment along with increased broadband competition are weighing on Verizon’s net additions, Swinburne noted.

Swinburne projected fiscal 2025 revenue of $138.41 billion and adjusted EPS of $4.68.

VZ Price action: VZ stock is trading lower by 0.59% to $42.71 at publication on Wednesday.

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