It's been a tough past three years for Verizon Communications (VZ -0.10%) shareholders. The stock price is down 40% from its late-2020 highs, bouncing back slightly from a new multiyear low reached just last month. The wireless market's saturation and the subsequent sales slowdown are anything but inspirational.
This stock's steep sell-off, however, is a buying opportunity. The foreseeable future isn't likely to look a whole lot like the recent past. Indeed, Verizon's got three things going for it now that aren't being factored into the stock's price. In no particular order:
1. The fixed wireless access market is poised to double in size
Most broadband internet connections in the United States utilize a cable television company's or phone company's existing lines, although fiber optic connections are becoming relatively common as well. There's a fourth viable option, however, that's coming on strong. That's fixed wireless access (FWA).
In short, FWA broadband service is exactly what it sounds like -- using the same mobile connectivity that keeps your smartphone connected to the World Wide Web wherever you go, a handful of telco companies can keep you connected at home as well; what's "fixed" is the receiving antenna attached to a subscriber's home, which is then connected to a router that allows for conventional wired or Wi-Fi access. Although your smartphone's connection speed seems relatively slow, most FWA connection speeds are adequately comparable to those speeds achieved by wired or fiber-based connections.
Fueled by the convenience of a fast-enough wire-free solution, market research outfit GlobalData expects FWA's share of the U.S. broadband market to double between now and 2028, growing from 7.2% to 15.8%. Assuming Verizon maintains its current share of the FWA market, its current subscriber count of 2.26 million should also double to 4.5 million. That's still nowhere near the same scale as its slowing wireless business. It's a significant growth opportunity all the same, though, and one with potential well beyond 2028.
2. Look for Verizon's 5G capacity to explode
It's not readily apparent to most consumers, but Verizon's expansion of its 5G wireless connectivity has been crimped by a lack of access to spectrum. That is, it didn't have the Federal Communications Commission's (FCC) permission to use certain radio frequencies that would support more devices' connections to its 5G networks.
That's recently changed, though, and in a pretty big way. Satellite operators both SES and Intelsat recently stopped using the so-called C-band of spectrum they had been authorized to use through 2025, allowing Verizon to access it ahead of schedule following its successful bid for it in 2021's FCC auction of these bands.
It's no small matter, either. As Verizon's Chief Network Officer Lynn Cox explained in mid-August, "where we've historically had a two or three-lane highway, we're gonna have a 20-lane highway now." Not only will this allow Verizon to connect more devices in more markets -- including fixed wireless connections -- it will also improve data speeds.
3. Managed network services will be a huge business
Last but not least, Verizon has an underestimated opportunity ahead of it to dominate the managed network services market.
It's probably not a term you've heard very often. In fact, you may have never heard it at all. That's a function of how little the technology has mattered yet. That's changing, though, with Verizon leading the way.
In simplest terms, a managed network is just a communications network meant for private use by a single organization. It can be a wired network, or wireless, or both. These platforms also typically include necessary options like cybersecurity tools and regular updates of software and hardware. They're "managed" in the sense that an organization usually outsources the establishment and ongoing maintenance of these networks to a third party like Verizon.
While the managed network services industry is still fairly young, Verizon has already landed a handful of impressive managed network customers. For instance, in May, the company extended a long-standing contract with the U.S. Postal Service to continue the post offices' infrastructure migration to the cloud. The deal also makes Verizon the USPS' key customer experience partner. In March, the Federal Aviation Administration (FAA) tapped Verizon to "design, build, operate, and maintain the FAA's next-generation communications platform." That contract is worth $2 billion, spread out over the course of the next 15 years.
These deals only scratch the surface of what awaits, however.
Now that so many institutions realize they need communications upgrades but can't handle the work themselves, Mordor Intelligence estimates the global managed network market will grow at an average annual pace of nearly 10% through 2028. Data Bridge Market Research is calling for a similar growth rate, pegging the managed network services' market size at more than $100 billion by 2029.
None of this is reflected in the price of Verizon's stock
Don't misread the message. Verizon's biggest business is still the consumer sliver of its wireless arm, accounting for almost half of its total revenue. It's running out of room to grow on this front, more frequently just swapping customers with the likes of AT&T and T-Mobile than winning over or creating new ones. Saturation is only going to make this dynamic even more challenging ahead. Then there's the issue it needs to address with lead cable.
All of this, however, is already priced into Verizon shares and then some. Meanwhile, little to none of the opportunities discussed above are being considered by investors.
The end result is dirt-cheap stock sporting a dividend yield of 7.5% based on a dividend that's far better protected than the company's currently getting credit for.
