Verizon Communications Inc.

VZ Details

Verizon Communications Inc. (NYSE: VZ) is a company that makes and sells items and services in the areas of communications, information, and entertainment. It operates in two segments: 1) Verizon Consumer Group, which provides cellular and landline communications services to individual customers, and 2) Verizon Business Group, which provides wireless services to business and government customers and wireline carriers, including data, video, and conferencing, corporate networking solutions, security and managed network services, local and long-distance phone services, and others.

Latest Updates

• VZ and AWS expand to 19 US metro areas: On May 25, 2022, Verizon and AWS announced that 5G mobile edge computing will be available in new U.S. metro regions, with Nashville, TN, and Tampa, FL joining the list. In August of 2020, the project will be launched. Over 75% of the population of the United States now lives within 150 miles of a Wavelength Zone.
• Added New Partners: On May 24, 2022, Verizon announced two new education-focused partners to its +play platform: Age of Learning®, which will offer its award-winning programs ABCmouse Early Learning Academy® and Adventure Academy®, and Perlego.
• Announcement of Quarterly Dividend: VZ's Board of Directors announced a quarterly dividend of 64 cents per outstanding share on May 31, 2022. Verizon stockholders who were present at the conclusion of business on July 7, 2022, will receive a quarterly dividend on August 1, 2022.
  

Q1 FY22 Results

• Decent Increase in Revenue: The revenue of the company has increased to USD 33.6 billion in Q1 FY22 vs USD 32.9 billion in Q1 FY21, driven by wireless service revenue of USD 18.3 billion up by 9.5% YoY.

(Source: Company Filings)

• Decrease in Net Income: The company's net income was USD 4.71 billion in Q1 FY22, down from USD 5.34 billion in Q1 FY21, due to a significant drop in other incomes and an increase in the cost of wireless equipment.
• Cash Inflows and Outflows: The company's cash flow from operations in Q1 FY22 was USD 6.8 billion, with USD 5.8 billion in Capex, including USD 1.5 billion for C-Band. The net unsecured debt to adjusted EBITDA ratio was at 2.8 times in Q1 FY22, which is acceptable Industry-wide.

FY22 Guidance

(Source: Company Filings)

Key Risks

• Risk of Ransomware Attacks: As per company’s report, the recent spike in ransomware grew by 13% in a single year, a jump bigger than the previous five years combined, is a cause for concern. As thieves attempt to use more sophisticated software, ransomware has shown to be particularly effective at exploiting and monetizing unauthorized access to sensitive information.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation

In the last three months, VZ's stock price has dropped by 7.00%. The P/E is at 9.4x and the Price to Book Value is 2.2x, both of which are lower than the industry median and have room to increase in the future quarters, which is simultaneously justified by strong fundamentals, a positive outlook, and a significant dividend yield of 5%, which is more than the industrial average.

VZ has demonstrated a growth path that involves, the launch of the C Band and the expansion of mobile edge computing. Moreover, by the end of 2022, at least 175 million people should have access to 5G Ultra-Wideband.

Based on revenue growth, increased operating and net margins, robust ROE, related risks, and current valuation, we recommend a "Hold" rating on the stock at the current market price of USD 50.85 as of June 02, 2022, at 07:48 AM PDT.

1 Year Technical Price Chart (as of June 02, 2022, at 07:48 AM PDT). Source: REFINITIV, Analysis by Kalkine Group 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.