Competition continues to be intense for the narrow-moat firm, and we view its shares as fairly priced.
Alex Zhao, CFA
12:59 PM | Email Article
posted another quarter of soft wireless customer growth as competition continues to be intense. The firm only added 167,000 net postpaid phone customers during the fourth quarter, far lower than a gain of 449,000 a year ago, on both weaker customer inflows and more customer defections. Postpaid customer churn ticked up to 1.1% in the quarter, versus 0.96% a year ago, but still decent in our view. We are disappointed as the weak performance did not jive well with the firm's strong promotional efforts in what typically had been a strong quarter for Verizon. Management commented that they intended to remain largely disciplined in pricing in response to new unlimited plans (likely at T-Mobile and Sprint). We continue to believe that the intensity of promotions in the market is not sustainable in the long run, and Verizon’s premium pricing strategy fits well with its brand perception. Although we expect the competitiveness in the marketplace to prolong into 2017, alongside acquisition rumors surrounding T-Mobile and Sprint, we believe Verizon’s market strength is intact, and we are affirming our narrow-moat rating. We are incorporating management's guidance for 2017 into our forecast, but we plan to keep our fair value estimate unchanged at $50 per share, which implies that the share is fairly priced, in our view.
Alex Zhao, CFA, is an equity analyst for Morningstar.
Total wireless service revenue declined 5% year over year, both for the fourth quarter and for 2016 overall, as the transition to unsubsidized rate plans continued to weigh on top-line growth. Verizon ended the year with 67% of postpaid customers on unsubsidized plans, compared with about 40% in December 2015. An important figure that we watch is services revenue and phone installment billings per account, which increased by almost 3%, continuing the strong growth seen in 2016. This growth figure, combined with low customer churn, supports our view that the firm remains a premium carrier despite slower customer growth recently.
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