October 29, 2023, $33.44
Business Overview:
- Verizon Communications, Inc. is a holding company that offers a range of communication, information, and entertainment services. It operates through two primary segments: Verizon Consumer Group, catering to consumer-focused communication services, and Verizon Business Group, which provides a variety of communication, data, security, and networking solutions for businesses.
- Verizon is the largest telecommunications company in the United States, with significant revenue totaling $134 billion in the trailing twelve months.
- The company was created by the merger of Bell Atlantic and GTE in June of 2000 and is headquartered in New York, NY. The forerunner was established in 1983.
Maverick Guidance:
- Short-term technical buy/sell recommendation: CAUTIOUS BUY
- Long-term portfolio recommendation: NEAR LONG-TERM ACCUMULATION ZONE (RSI 14), CAUTIOUS BUY ON WEAKNESS WITH LOW RISK AND HIGH DIVIDEND YIELD
- Dividend yield: 7.57%, but continuously declining earnings and cash flow may lead to dividend cuts (after 17 years of continuously growing dividends)
Consideration for Maverick Portfolio:
- Appropriate for risk profile score of 16-21. The Moderately Conservative Investor aims for a balanced approach that combines growth and stability. The Maverick CAUTIOUS GROWTH portfolio is designed to achieve modest medium-term total returns.
SWOT Analysis
Internal Operational and Financial Factors
Strengths:
- Market Dominance: As the largest wireless carrier in the US, Verizon holds significant market influence and can shape industry policies to its advantage.
- Global Operations: With a presence in 150 locations worldwide and an extensive IP network in 2770 cities, Verizon has a strong global reach for its telecom, network management, and IT services.
- Strong Financial Position: Ranked as one of the most profitable public companies in the US, Verizon’s robust financial capabilities allow it to remain competitive and invest in its growth and development.
- Highly Innovative: Renowned for its technological advancements, including 4G LTE and 5G networks, VoIP, and Fios, Verizon continues to lead in innovation, catering to the demands of the modern digital consumer.
- Valuable Brand: With a focus on brand value, Verizon has secured a prominent position globally, ranking 19th for brand value by Forbes in 2019 and 43rd for brand strength in the Fortune 500.
- Effective Marketing Strategy: Verizon’s creative marketing campaigns and customer-centric promotions have allowed it to differentiate itself in a competitive market, contributing to its success and market presence.
- Strategic Acquisitions: Through strategic acquisitions such as AOL, Alltel, Yahoo, and BlueJeans, Verizon has expanded its market share and enhanced its offerings, solidifying its position as a market leader.
Weaknesses:
- Overdependence on the US Market: The company’s heavy reliance on the US market makes it vulnerable to market issues, impacting its financial performance and forecasts, as evidenced by the loss of subscribers and revenue forecast adjustments.
- Negative Publicity: Instances of data breaches and leaks have tarnished Verizon’s reputation, leading to a decrease in customer trust and loyalty affecting its brand image.
- Extra Data Charges: Verizon’s additional charges for data usage beyond the allotted plans have led to customer dissatisfaction, as users prefer transparent and fair pricing models without unexpected additional fees.
- Breach of Trust: Selling customer phone location data to third parties and law enforcement agencies has violated the trust between Verizon and its customers, potentially causing long-term damage to the company’s customer relationships.
- Lack of Diversification: Limited diversification beyond the telecommunication sector increases Verizon’s vulnerability to market fluctuations, potentially leading to significant losses in the event of a downturn in the sector.
External Strategic Factors
Opportunities:
- Exploit Videoconferencing: Leveraging its recent acquisition of BlueJeans, Verizon can capitalize on the growing demand for remote work technologies, similar to the success seen by companies like Zoom. Prioritizing and enhancing its offerings in this sector can lead to significant opportunities for the company.
- Global Expansion: While currently offering network management, security, and IT services internationally, Verizon should consider expanding its wireless services globally to tap into the wider market and leverage its expertise and capabilities on a global scale.
- Expand through Acquisition: Given the competitive landscape after the T-Mobile-Sprint merger, Verizon should consider acquiring another smaller wireless carrier to bolster its market share and maintain a strong competitive position in the industry.
- Diversify Portfolio: With the advent of 5G technology, Verizon should explore diversification beyond telecommunications, focusing on emerging fields such as augmented reality, smart cities, and autonomous vehicles. Emphasizing these areas can ensure the company’s sustainability and relevance in the evolving technological landscape.
Threats:
- Intense Competition: In a competitive landscape dominated by Verizon, AT&T, and T-Mobile, Verizon must contend with fierce rivalry, particularly from T-Mobile, to safeguard its market share and uphold its position in the industry.
- Stringent Regulations: Given the sensitive nature of telecommunications and the need to protect user information, Verizon operates under strict regulatory oversight. Potential increases in regulations could impact the company’s operations and profitability.
- Hacking and Data Leaks: Vulnerability to cyberattacks and data breaches poses a significant threat to Verizon, potentially leading to costly legal settlements and damage to its reputation, as seen in the 2017 data leak incident.
- Looming Recession: The looming global recession, exacerbated by the economic fallout from the pandemic, poses a significant risk to Verizon’s profitability and financial performance. The company must navigate this challenging economic environment to maintain its stability and growth.
Market Guidance:
- Consensus Analyst Ratings— MarketBeat = Moderate Buy, TipRanks = Moderate Buy
- 10 Wall Street analysts have offered 12-month price targets in the last 3 months. There are 5 Buy, 5 Hold, and zero Sell. (from TipRanks)
- Based on 10 Wall Street analysts offering 12-month price targets in the last 3 months, the average price target is $39.94, with a high forecast of $44.00 and a low forecast of $35.00. The average price target represents a 19.4% change from the last price of $33.44. (from TipRanks)
- Dividend Yield: $0.67 per share paid quarterly to yield 7.57%. Extremely high due to the low current price
- Dividend growth for 17 years.
- Technical Sentiment (based on Technical Indicators and Moving Averages):
- Investing.com = Daily (STRONG BUY) and Weekly (SELL)
- TipRanks = Daily (BUY) and Weekly (NEUTRAL)
Value Line Guidance:
- Company Financial Strength Rating: A+
- Share Price Safety, Market Timing, Technical Rank: 1=best. 5=worst
- Share Price Safety: 3 of 5
- Market Timing: 3 of 5
- Technical Rank: 4 of 5 (lowered 9/1/23)
- Beta: 0.70
- Stock’s Price Stability: 100/100
- Price Growth Persistence: 20/100
- Earnings Predictability: 100/100
- Average Annual PE: 13
- Average Annual Sales Growth in the past 5 years: +0.5%
- Average Annual Sales Growth for the next 5 years: +2.5%
- Average Annual Cash Flow Growth in the past 5 years: +3.0%
- Average Annual Cash Flow Growth for the next 5 years: +NIL
- Average Annual Earnings Growth in the past 5 years: +6.0%
- Average Annual Earnings Growth for the next 5 years: +1.5%
- Average Annual Dividend Growth in the past 5 years: +2.0%
- Average Annual Dividend Growth next 5 years: +2.5%
- Average Annual Dividend Yield 3 to 5 years: +3.5%
Financial Performance
- 10-year Average Annual Total Return: +0.60% (through Oct 27, 2023) (28th lowest).
- EPS 2021: $5.39 2022: $5.18 FY2023: e$4.87 FY2024: e$4.62
- Average Annual PE: 13 (VL Quarterly Report)
- PEG Ratio: 12.6 (FinViz)
- Beta: 0.37 (FinViz)
Quarterly Reports Summaries (including Revenue, Cash Flow, Earnings):
Third Quarter (3Q2023): September
- Revealed positive momentum with improved profitability and growth in wireless service revenue. Despite a decrease in consolidated operating revenue, Verizon saw a notable increase in total broadband subscribers and strong free cash flow. The company also achieved growth in wireless service revenue and significant net additions in various segments.
Second Quarter (2Q2023): June
- Experienced a slight decline in revenue, with particular challenges in the Business wireline services segment. However, the company reported strong demand for fixed wireless and Fios products, leading to a significant increase in total broadband net additions.
First Quarter (1Q2023): March
- Witnessed a decline in both consolidated operating revenue and net income. However, the company saw increased cash flow from operations and free cash flow. The wireless segment experienced growth in total wireless service revenue, while the consumer segment reported declining wireless equipment revenue.
Fourth Quarter (4Q2022): December
Faced pressure on the bottom line, with earnings falling short of estimates. While there was top-line growth driven by wireless service revenue, this was offset by declines in the wireline business and the impact of merger and acquisition activity. The number of wireless retail postpaid customers experienced a decline.
The 3-to-5-year Operational and Financial Outlook:
- Despite fluctuations in recent quarter operations and a rapid decline in the stock price, management remains focused on its strategic initiatives, including deploying its C Band 5G network.
- The company expects continued growth and strong cash flow. It has also increased its dividend for the 17th consecutive year, highlighting its commitment to shareholder value.
- However, challenges in certain segments, competitive pressures, and capital expenditure reductions indicate a need for careful monitoring of the company’s performance in the coming quarters.
FinViz Snapshot: https://finviz.com/screener.ashx?v=341&t=VZ
10-Year Historical Price Chart:
https://tvc-invdn-com.investing.com/data/tvc_e5a0e6c2ea538a20279b2f09c5afb0ca.png
Point & Figure Chart: (from StockCharts.com)
https://stockcharts.com/freecharts/pnf.php?c=VZ,PWTAWANRNO[PA][D][F1!3!!!2!20]
