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Why is Buffett backing Verizon's share price?

Verizon's [VZ] share price got a fuzzy reception from investors in 2021. Last year the stock dived over 11%, while over the past six months Verizon’s share price is down 4%. Still, December was a strong month with the stock up almost 8% and investors will be hoping that’s a sign of a stronger performance in 2022.

One person who likes Verizon is veteran investor Warren Buffett. Berkshire Hathaway owns $8.3bn worth of shares, making up just under 3% of the conglomerate’s portfolio. According to Investors Business Daily, Verizon is Berkshire Hathaway’s fifth biggest holding by number of shares held.

Buffett likes good value, well managed companies that reward shareholders. And while Verizon ticks those boxes its share price isn’t exactly synonymous with growth. Over the last two years the stock has gained just over 8% to close Friday at $54.24. While that’s better than rival AT&T’s [T] 31% decline, it’s well off the pace of the S&P 500’s 43.81%.

Of course, the telecom giant is a mature company and with investors moving away from growth stocks, the company’s rock bottom valuation and strong underlying fundamentals warrant a closer inspection.

So is 2022 looking better for the stock as the rollout of 5G continues? Or should the sage of Omaha consider trimming his holdings?




Should investors care about Verizon’s share price?

Verizon’s share price could benefit from several tailwinds this year. An ever-increasing uptake of the tech firm’s Ultra Wideband 5G network should help. The telecom’s giant announced last week that 100m more Americans should be able to access the service this month. Right now Verizon’s 5G service is available to 230 million people in over 2,700 cities.


Total of people to whom 5G service is now available


However the start of January also saw both AT&T and Verizon agree to delay the rollout of a new 5G service at the request of the US transportation authority over concerns that the technology could affect airplane safety systems - something the industry disputes.

Verizon was the first to launch a commercial 5G network in the world. It also consistently beat Wall Street earnings expectations over the past four quarters. In the third quarter, Verizon posted earnings of $1.41, ahead of an expected $1.35, based on data from Yahoo Finance.


How Wall Street rates Verizon’s share price

Analysts remain mostly neutral on the stock. Zacks gives it a rating of 3 and out of the 31 analysts offering ratings on the Wall Street Journal, 21 rate Verizon a Hold. Among those with a neutral rating is Daiwa analyst Jonathan Kees. The analyst initiated coverage on the stock in December with a $57 price target citing competition from T-Mobile as a headwind.

Verizon’s share price carries an average price target of $59.3 - which is fairly close to Friday’s closing price of $54.24 The most bullish target is $72 - a hefty 32.7% upside - while the most bearish is $52 - so at least Wall Street doesn’t think that a selloff is likely.

Following the third quarter earnings in October, Cowen analyst Colby Synesael raised his price target from $68 to $71 and said that “the stock is now meaningfully undervalued” in a note to investors.

“There is a strong case to be made that Verizon could become one of the best performers of the Dow for 2022, following its rock bottom position during this year” - SeekingAlpha's Vladimir Dimitrov


More promising is Verizon’s 4.76% forward dividend yield. Writing on Seeking Alpha, Vladimir Dimitrov also points to the dividend as a plus for investors. Looking at the large cap stocks that lagged the market last year, Dimitrov suggests that Verizon’s aggressive approach to 5G investment - it is spending twice as much as  its rivals - is the reason that it has been ‘underperforming the sector since December of 2021’. But these investments could see Verizon edge out the competition in 2022.

“There is a strong case to be made that Verizon could become one of the best performers of the Dow for 2022, following its rock bottom position during this year.”


Where next?

Is Verizon’s share price primed for a turnaround? That’s a tough call - after all this is a stock which has grown less than 4% over the last 5 years and Wall Street analysts don’t exactly seem enamoured with the stock.

Arguably Buffett likes the company as it’s good value (just look at the 9.29 forward price to earnings ratio), is solidly generating cash and is delivering dividends for its shareholders. So while 2022 might not see it ripping too much higher, it might offer a degree of resilience to an investor’s portfolio. A key date for investors will be January 25 when Verizon will report its fourth quarter earnings.

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