Sector rotation is on investors' minds, and no stock provides value, yield, or opportunity like Verizon (NYSE: VZ). Its shares are down more than 5% following its Q2 release, setting up a significant opportunity that will deliver double-digit stock price gains in addition to the 6.5% yield within the next year or two.

The results were mixed and raised concerns about growth for this telecom stock, but the same details impacting the Q2 results set the business up for leverage later this year and in 2025. Strong user count growth, the upcoming AI upgrade cycle, and lower interest rates are among them. 

Verizon Falls on Mixed Results; User Count Sustains Revenue Growth 

Verizon had a sluggish, weaker-than-expected Q2 but still produced growth YoY growth, extending the trend to two quarters; it accelerated growth from the prior quarter and reaffirmed the guidance. The bad news is that revenue fell short by a slim 70 basis points on weakness in equipment sales that may persist in Q3. Regarding subscribers, the company reported growth in its wireless and broadband segments driven by consumer and business client growth. 

The weakness is seen entirely in equipment sales. Equipment sales are down due to upgrade weakness caused by high prices, high interest rates, and anticipation for next-gen releases later this year. The takeaway for investors is that demand remains and will build as existing hardware ages and new models become available. That will happen before the end of this year. 

The iPhone upgrade cycle alone is predicted to be larger than historical data indicates, supported by the addition of Apple Intelligence generative AI tools. That cycle is expected to begin later this year and not peak until late 2025. By then, other phone manufacturers will have released their AI-powered models, sparking their upgrade cycles and driving Verizon's business. Because Verizon is making outsized gains in customer acquisition, it should leverage top and bottom-line growth as the upgrade cycle develops. 

Verizon’s margin news is also mixed but favorable to shareholders. The company experienced margin narrowing on a GAAP basis due to one-off factors that did not impair the cash flow. However, the adjusted EBITDA is up 2.5% and helped to increase the cash flow and free cash flow despite a contraction in reported earnings. The adjusted $1.15 in EPS is as expected despite the top-line weakness, but it is down $0.06 compared to last year. The salient detail is that free cash flow is up 6.25% YoY, aiding another quarter of balance sheet improvement, including debt reduction. 

Guidance is favorable if tepid. The company reaffirmed its outlook for low single-digit top-line growth and adjusted EPS in a range with a midpoint above the consensus. Assuming equipment sales improve in the third quarter as expected, Verizon may increase its guidance later this year and drive an upgrade cycle for its stock.

Until then, MarketBeat tracks 15 analysts; they rate this stock as a Moderate Buy and see it advancing about 15% at the consensus midpoint. The consensus is rising this year, and the low target of $39 may be the floor for action. It aligns with the low end of Verizon’s recent trading range, where the stock is priced at the deep value of only 9x earnings. 

Verizon Retreats to the Low End of its Trading Range

Verizon is down more than 5% following its Q2 release, but the market will not stay at this level for long. There are already signs of buying at the critical support target, and the likely buyers include institutions. Institutions have been buying Verizon on balance for the last two years; their activity coincides with last year's rally and market floor in 2024. A rebound should begin soon if VZ price action remains above this level. In that scenario, VZ could break out of its range to the upside, moving toward the consensus $45, and confirm a complete reversal for this market. If not, VZ shares could fall back to $37.50 or lower before finding firm support.