Citing modest improvement in key financial measures, KeyBanc analysts downgraded Verizon (VZ, Financials) from "overweight" to "sector weight" after the company's third-quarter results release. The company underlined issues about deteriorating free cash flow and the absence of acceleration in EBITDA until 2025.
The analysts also questioned Verizon's possible purchase of Frontier (FYBR, Financials), labeling it as a bad capital allocation action likely to impede possible share repurchases. Although Verizon's Consumer Group postpaid phone data indicated improvement, experts pointed out that the business is paying more, especially with regard to rising device subsidies, which are rendering growth more costly to reach.
KeyBanc forecasts that, with lower subscriber and ARPA (average revenue per account) growth, Verizon's cellular service revenue growth would stall in 2025; EBITDA growth is likely to hover around 2%. The company anticipates higher cash taxes in the next year; free cash flow is projected to drop to less than $18 billion.
KeyBanc said that Verizon would need to see EBITDA growth of over 3%, capex at the low end of its projection, and maybe gain from corporate tax rate adjustments if it drives future stock gains.
