Morgan Stanley resumes coverage on Verizon and Frontier with a neutral view

Morgan Stanley has reinitiated coverage of Verizon and Frontier Communications, giving both companies an "equal weight" investment rating, citing Verizon's attractive stock valuation and potential for increased free cash flow despite a cautious EBITDA growth outlook.

The firm projects that Verizon will see improved consumer postpaid net additions in 2025 compared to 2024, with forecasts suggesting a slight increase from 82,000 to 87,000 net additions, although challenges may arise in 2025.

Morgan Stanley anticipates annual growth rates for Verizon's wireless service revenue to range from 2.5% to 3%, with projections of potential growth scenarios between 2% and 4% over the next three years.

The analysts highlight Verizon's strategy to expand its fiber network, targeting 35 million fiber passings by 2030, and have set price targets of $47 for Verizon (12.1% upside) and $38.50 for Frontier Communications (5.3% upside).

Investment Summary: Morgan Stanley's Insights on Verizon and Frontier Communications

On Thursday, Morgan Stanley reinitiated its coverage of Verizon (NYSE: VZ) and Frontier Communications (NASDAQ: FYBR), assigning both companies an "equal weight" investment rating.

The analysis conducted by Benjamin Swinburne and his team highlights Verizon's position as a balance of appealing stock valuation and potential upside to free cash flow due to bonus depreciation. However, this is tempered by a conservative outlook for EBITDA growth and uncertainties surrounding consumer wireless customer additions.

Morgan Stanley recognizes Verizon's clear strategy aimed at enhancing its consumer wireless performance. The firm predicts a stabilization in the pace of market share losses in the foreseeable future. Nevertheless, they caution that the trends anticipated for 2025 may present greater challenges.

Furthermore, the analysts forecast that Verizon will meet its guidance for increased consumer postpaid net additions in 2025 compared to 2024, projecting a slim margin of improvement (87,000 in 2025 versus 82,000 in 2024).

In their detailed analysis, Morgan Stanley considers multiple factors, including the anticipated slowdown in industry growth, Verizon's competitive pricing advantage, the current market conditions, and the company's strategic initiatives aimed at enhancing wireless service performance. They predict annual growth rates in wireless service revenue to be between 2.5% and 3%, with the potential for a bullish scenario of around 3% to 4%, and a bearish scenario of about 2%, for the next three years.

After the completion of the Frontier transaction, Morgan Stanley believes Verizon will strive to expand its fiber network, targeting 35 million fiber passings by 2030 and aiming for the upper range of its fiber passing guidance of 35 million to 40 million over time.

Currently, Verizon's price target is set at $47, indicating a potential upside of 12.1%. Frontier Communications has a price target of $38.50, reflecting a 5.3% upside.