During a booming twelve-month period for the markets, Verizon Communications (VZ) stock has made few dramatic moves. That seems sensible, given that its main appeal is the company’s solid, stable forward dividend yield of 4.33%, not the potential for high price appreciation.
Despite its stability, some may wonder whether the company’s recent move to jettison its online media unit, which included brands such as AOL and Yahoo!, could help change the stock’s growth situation.
Verizon had paid up big to acquire both businesses, to the tune of $9 billion. Now, only a few years after its mid-2010s online media splurge, the company is unloading a 90% stake in the unit to private equity giant Apollo Global Management (APO) for just $5 billion.
Is this deal, which seems to be a case of throwing in the towel, a good thing for Verizon shares? It should be a positive move, but so far it has not been, and likely will not be, a driving factor for its stock price. (See Verizon stock analysis on TipRanks)
VZ Stock and Exit From Online Media
Much like AT&T (T), a few years ago, this internet and phone provider decided to try its hand as well at diversifying into media. Verizon shied away from acquiring “old media” properties like its rival did via its costly acquisition of Time Warner back in 2018.
Verizon did go with some “old school” names, but they were “old school” in the sense that they were brands that got their start at the dawn of the dotcom era.
In buying up AOL and Yahoo!, Verizon might have believed it could become a major player in the online advertising space. Yet, holding just 2% market share, it has not exactly beaten ad powerhouses Google (GOOGL) and Facebook (FB) at their own game.
In hindsight, it made little sense to try competing with ad-focused tech giants. By admitting defeat now, the company can shift its focus back to what it does best.
Refocus on Telecom Unit
Considering the company’s overall market capitalization of around $243 billion, its ill-fated foray into new media didn’t do much damage. The flip-side, though, is that the sale of its media division does little to help overall prospects for VZ stock.
Sure, with its need for cash in order to capitalize on 5G, the $5 billion in proceeds from the deal will come in handy. In order to keep up with AT&T and T-Mobile (TMUS), Verizon has to pay large amounts for the airwave spectrum.
Verizon is certainly facing many challenges. However, given that the company is well-established and less levered than rival AT&T, Verizon has a shot at holding the competition at bay. This bodes well for keeping results steady, which in turn will help secure its current dividend payout.
At the same time, investors looking for stocks with appreciation potential will likely look elsewhere. This likely means that the stock, after popping and dropping on the divestiture news, is not likely to shift significantly from its current price levels of around $58 per share.
What Analysts are Saying About VZ Stock
According to TipRanks, VZ stock has a Moderate Buy analyst consensus rating. Out of 13 analyst ratings, 5 rate it a Buy, 8 analysts rate it a Hold, and 0 analysts rate it a Sell.
As for price targets, the average analyst price target on VZ stock today is $61.30 per share, implying around 7.2% upside potential from current price levels. Analyst price targets range from a low of $57 per share to a high of $64 per share.
Bottom Line: Divestiture is a Net Positive, But It’s No Gamechanger
Both AT&T and Verizon entered into the media business around the same time. Interestingly, both are opting to divest these recent holdings at the same time as well. Similar to Verizon’s above-mentioned divestiture, AT&T has just announced plans to merge its media unit with Discovery (DISCA).
After spreading itself too thin, Verizon is smartly trimming down its empire at a time when even its bread-and-butter telecom unit faces challenges of its own. Competition is heating up, and the company is facing pricing pressures. Despite spending heavily to upgrade for the 5G revolution, its ability to raise prices is dubious, given its competitors’ low prices.
Verizon’s ability to generate enough cash flow to service the dividend is vital to its future prospects. In the grand scheme of things, the aforementioned divestiture does little to change the fortunes of VZ stock.
Disclosure: Thomas Niel held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.