Verizon Communications (NYSE:VZ) jumped recently after posting earnings. Profit beat estimates and rose year over year, but revenue missed estimates.
The stock still trades at a discount to peers, under 9.5 times forward earnings versus roughly 13x for the group. The question is whether that discount is a gift or a warning sign.
The Bull Case
Verizon just posted a strong quarter for postpaid phone net additions in five years, beating analyst expectations by a wide margin. Broadband adds stayed strong across fixed wireless and fiber. Adjusted EBITDA hit a record, up 7.2%, pushing margins to an all-time high above 40%.
Management raised full-year guidance for the second straight quarter. EPS growth is now guided to 6-7%, and free cash flow growth guidance got bumped to 9-10% from 7% previously. That’s a meaningful acceleration from the low single-digit free cash flow growth Verizon posted the last few years.
The dividend looks safe. Free cash flow payout ratio sits under half of what the company generates, and the roughly 6% yield comes with a multi-year streak of annual hikes. Buybacks add another layer of shareholder return: the company is already ahead of pace for the year, and management just raised the full-year target further.
Starlink Threat?
Bulls also argue the Starlink threat is overstated. Satellite beams cover wide areas even at low speeds, and signals struggle indoors, so a real terrestrial buildout still requires towers and fiber. Bulls say satellite technology can’t replace what Verizon and AT&T do because coverage and reliability just don’t scale the same way from orbit.
There’s also a slower-moving tailwind. The global telecom market is projected to roughly double over the next nine years, growing at a mid-single-digit-to-high-single-digit annual clip. Verizon’s scale means it captures a chunk of that just by holding share. On top of that, new AI-driven fiber deals are emerging — Verizon announced a sizable multiyear agreement with Google to connect data centers, with more deals reportedly in the pipeline.
The Bear Case
The growth story has limits. Total revenue still fell, driven by weak equipment sales as customers hold onto phones longer and Verizon pulls back on device subsidies. Core mobility and broadband service revenue grew just 2.8%, decent but not the kind of number that closes a decade-long gap with the market.
That gap is real. Verizon has returned roughly half its dividend yield in total stock performance over the last ten years, while the S&P 500 gained over 300% in the same stretch.
Debt is the bigger problem. Total debt keeps climbing, and net debt jumped close to 20% year over year. A completed multibillion-dollar acquisition earlier this year, plus a fresh spectrum purchase, land on top of the buybacks already discussed, while capital spending stays roughly flat. That leaves little room to invest more aggressively in spectrum or satellite competition if the threat turns out to be bigger than management thinks.
Cheap or a Trap?
The valuation gap doesn’t match the operating trend. Subscriber growth turned a corner, margins hit records, guidance moved up twice in a row, and the dividend is covered by real cash flow, not accounting math. A discount this wide to peers is unusual for a business executing this well on the metrics that matter most for income investors.
The trap risk isn’t earnings quality. It’s the balance sheet. Debt keeps climbing even as management touts cost discipline, and the buyback pace competes with the same cash flow bulls point to as dividend support. That combination caps how much re-rating happens before Verizon proves debt isn’t just stable, but coming down.
Aristotle Value Equity Strategy stated the following regarding Verizon Communications Inc. (NYSE:VZ) in its Q1 2026 investor letter:
“Verizon Communications Inc. (NYSE:VZ), one of the largest telecommunications companies in the U.S., was a primary contributor during the period. After delivering its strongest customer growth in several years, Verizon now serves 96 million postpaid customers and 20 million prepaid connections, further cementing its leadership as the largest wireless carrier in the country. We believe this performance also… [read the full letter text here]”
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