Don't Underestimate Verizon's Stock

 

KEY POINTS

• 5G is here, and it's raising the bar for device connections across the country.
• It may not get much attention, but 5G Home is available to 100 million people, and it may already beat cable broadband.
• Verizon stock trades like a value stock, but with 5G Home, it could be a steady growth stock in the long term.

Verizon's core business is steady, but it has a huge growth opportunity with 5G broadband.

Three months ago, I got so sick of a spotty internet connection from Comcast that I bought a (very expensive) wireless business plan from Verizon ( VZ 0.55% ) for my home office. Unfortunately, 5G wasn't available where I live, so it was a 4G LTE connection, but speeds were comparable to Comcast, and the wireless box was far more reliable than my home Wi-Fi. 

To my surprise, a few weeks later, I learned that 5G had been turned on in my neighborhood. 5G Home was now available for just $70 a month ($30 less than Comcast broadband). A few emails and phone calls later, and a 5G Home box was on its way. My 4G LTE wireless router was headed back to Verizon.

A little over a month in, 5G Home from Verizon is more reliable than my cable internet is. I'm ready to cancel Comcast broadband. This story may be anecdotal, but it could be revolutionary for Verizon on a large scale. I'm not sure the market even realizes Verizon could have a massive growth business on its hands.

Image source: Getty Images.

Reaching into the home

A vast majority of Verizon's revenue comes from wireless services and related hardware for businesses and consumers. At the end of 2021, the company had 115.4 million wireless retail connections and just 13.1 million combined Fios video, internet, and digital voice connections, with another 6.9 million wireline broadband connections. Not surprisingly, wireless is growing, adding 1.1 million net subscribers last year. Meanwhile, Fios lost 222,000 connections, offset by 241,000 net additions for wireline broadband.

The general story of these numbers is that Verizon is huge in wireless phone service but hasn't been particularly successful at reaching into the home. And it's losing customers in the Fios business, which has never lived up to expectations. 

But this dynamic may change with 5G Home wireless broadband service. It's faster and cheaper than cable and DSL broadband, at least in some areas, and it'll be a huge opportunity for Verizon if the company can bundle these products successfully. Verizon has said that its 5G Home service is already available to 100 million homes, and the rollout is going much faster than expected. Management hoped to have 11 million home broadband subscribers by 2025, but I think that's underestimating the business's potential. 

The new bundle

We're starting to see Verizon offer discounts for multiple services, but it's not a true bundle company yet. For now, it's bringing together 5G smartphone coverage with 5G Home broadband. But I think that's just the start. 

Dozens of streaming services are now available, and some are sold through Verizon. Bundling these services together with two wireless services makes sense, especially as streaming companies look for more distribution options. 

Don't underestimate the edge

I've focused primarily on consumer services Verizon will be able to bring to the market with 5G. But another significant impact could be on what's known as the edge. Verizon is calling this the "network-as-a-service" for businesses building solutions for computing at the edge of the cloud. 

In general, the idea is that computing power doesn't need to be done entirely on devices like computers and smartphones. Some computing can be pushed to the "edge," crunching numbers and analyzing data streams at a network hub near the user. As the company connecting devices to the internet, Verizon is a likely player here. 

It's not clear how big Verizon will be able to make this business, but like Verizon Home, it's an incremental addition of revenue and margin for the company. The core smartphone connection business is strong -- broadband and the edge is about growth. 

Verizon's stock is cheap given its growth potential

Telecommunications stocks may not be the market's favorites, but there's a lot to like about Verizon stock. Shares trade for an earnings multiple under 10, the dividend yield is 5%, and as I highlighted, I think there's a lot of potential for growth. 

VZ data by YCharts

Suppose the edge or 5G broadband provides even a few percentage points of additional growth. In that case, they could change the narrative of this company from being a very slow-growth, high-capital-cost operation to a very profitable business growing the bottom line by 5% or more per year. I think the value is compelling enough, but from what I've seen from 5G Home, there's more growth in Verizon's future than investors are giving it credit for.