Verizon Communications Inc.

VZ Details

Business Update: Verizon Communications Inc. (NYSE: VZ) is headquartered in New York and is one of the leading providers of technology, communications, information, and entertainment products and services. The market capitalization of the company as on 07 July 2021 stood at ~$234.03 billion. As per a recent announcement, it has been updated that from July 08, Motorola 5G phone (Motorola one 5G UW ace) will be available on Verizon. The device will give access to all of Verizon's 5G features, including enhancements to the 5G Ultra Wideband leveraging C-Band spectrum and the brand new Verizon Adaptive Sound system.

Introduction of THOR: Verizon Frontline has recently unveiled Tactical Humanitarian Operations Response (THOR) vehicle as a part of the continued partnership between Verizon Public Sector and the Department of Defense through NavalX and the SoCal Tech Bridge.

Acquisition News: The company has recently announced the acquisition of Senion, which is a global leader in location-responsive solutions. The acquisition enhances VZ’s location-based technology portfolio and will enable companies to better manage their spaces.

Q1FY21 Performance Update: During the period, the company generated revenues of $32,867 million, an increase of ~4% on the previous corresponding period. It delivered net income of $5,378 million in Q1FY21, compared to $4,287 million in Q1FY20. It ended the period with cash and equivalents of $10,205 million as of 31 March 2021.

Revenue Trend (Source: Analysis by Kalkine Group)

Key Risks: The company’s line of business makes it prone to stiff competition from peers. In this regard, Huawei HWT.UL sued the company alleging it has used Huawei patents without permission. However, Verizon has dismissed the lawsuit as nothing more than a PR activity from Huawei.

Outlook: The company has recently announced the election of Laxman Narasimhan, to the Board of Directors, effective 01 July 2021. Laxman’s expertise in consumer services, global operations and strategic development is expected to guide the company going forward as it continues to accelerate 5G adoption by consumers, execute on its Network-as-a-service strategy and grow into new markets. VZ will report its Q2FY21 results on 21 July 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

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

Stock Recommendation: The U.S. Department of Defense has chosen Verizon Public Sector to deliver its high-bandwidth, low-latency Layer 2 wide area network in order to support its critical research. The contract is pegged at around $495 million. The stock of VZ is trading below its 52-weeks’ average levels of $61.95 - $53.75. The stock of VZ gave a positive return of ~2.70% in the past one year and a negative return of ~4.65% in the past six months. On a technical analysis front, the stock of VZ has a support level of ~$55.57 and a resistance level of ~$62.22. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation and have arrived at a target price with an upside of high single-digit (in % terms). We believe that the company can trade at a slight discount to its peer median EV/Sales (NTM trading multiple), considering its high debt to equity ratio, high cash cycle days and based on discount of historic trading multiple to its industry peers. For this purpose, we have taken peers such as AT&T Inc (NYSE: T), T-Mobile US Inc (NASDAQ: TMUS), Comcast Corp (NASDAQ: CMCSA), to name a few. Considering the current trading levels and indicative valuation, decent financial performance, strategic contract wins and recent acquisition, we recommend a ‘Hold’ rating on the stock at the closing market price of ~$56.53, up by 0.21% as on 7 July 2021.

VZ Daily Technical Chart, Data Source: REFINITIV

Note: Purple Color Line Refers to Momentum Oscillator Relative Strength Index - RSI (14) Period

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 on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.