KeyBanc cuts Verizon rating on decline of key metrics, limited growth going ahead

Analysts at KeyBanc downgraded their investment rating on Verizon (NYSE:VZ) to “sector weight” from “overweight” following the company’s third quarter report earlier this week. They cited limited room for EBITDA acceleration in 2025 and likely declining FCF growth, among reasons for the rating cut.

The research firm thinks the telecom’s potential acquisition of Frontier (FYBR) is a poor capital allocation decision and limits a bull case of share repurchases. Alongside that, they noted the postpaid phone numbers at Verizon Consumer Group (VCG) are improving but are also getting more expensive.

“VZ is turning from negative VCG postpaid phone net adds to positive and is improving y/y; however, at the same time, device subsidy has increased, which implies it’s getting more expensive to achieve the growth,” KeyBanc said in an October 24 research note.

Looking ahead into 2025, KeyBanc sees wireless service revenue growth decelerating from lower Sub/ARPA growth, EBITDA growth of ~2%, FCF moving backward toward to <$18B, and expects cash taxes to be higher.

“We think in order for the stock to appreciate further, EBITDA growth would need to accelerate toward 3%+, capex would need to be the low end of the range, and cash taxes would need corporate tax rate changes,” they added.

VZ is up 11% so far this year, while the benchmark S&P index rose nearly 22%. Stock is down 2.5% in afternoon NYSE trading on Thursday.