Amid uncertain economic conditions, investors looking for a steady income stream and long-term capital appreciation could consider buying Verizon Communications Inc. (VZ), as the company pays reliable dividends and possesses solid growth prospects.
VZ provides communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. The company operates through Consumer and Business segments.
For the fiscal 2022 third quarter, the company’s total broadband net additions stood at 377,000, an increase of 109,000 from the second quarter of 2022. This reflects the strong demand for reliable and high-value broadband offerings. Also, more than 40 million households were covered by fixed wireless during the period, including over 30 million households covered by 5G Ultra-Wideband.
The company took various actions in the third quarter to improve its operational and financial performance. Among others, it focused on cost-saving and pricing measures. On October 27, 2022, VZ laid off a ‘small number’ of workers as a part of its cost-cutting program. In addition, it continues to execute its 5G strategy, focusing on covering every major market and accelerating its C-band network build.
“We are on track to reach 200 million POPs within first-quarter 2023,” said Verizon Chairman and CEO Hans Vestberg.
Furthermore, VZ’s financial strength enabled the company to increase its dividend for 18 consecutive years. On September 6, VZ declared a quarterly dividend of 65.25 cents per outstanding share, which reflects an increase of 1.25 cents per share from the previous quarter.
VZ pays a $2.61 per share dividend annually, which translates to a 6.92% yield on the current share price. Its four-year dividend yield is 4.56%. The company’s dividend payouts have grown at a CAGR of 2% over the past three years and 2.1% over the past five years.
VZ’s stock has declined 4.8% over the past month to close the last trading session at $37.15. However, Wall Street analysts expect the stock to hit $45.53 in the near term, indicating a potential upside of 22.6%.
Here is what could influence VZ’s performance in the upcoming months:
Robust Financials
For the fiscal 2022 third quarter ended September 30, 2022, VZ’s total operating revenue increased 4% year-over-year to $34.24 billion. The company’s wireless equipment revenue grew 22.9% from the prior-year period to $6.58 billion.
VZ’s wireless service revenue came in at $18.80 billion, up 10% year-over-year, primarily driven by the company’s ownership of TracFone, continued effectiveness in its premium Unlimited strategy, and strength in Business volumes. Also, its total broadband connections increased 51.1% year-over-year to $790,000.
Favorable Analyst Estimates
Analysts expect VZ’s revenue for the fiscal 2022 fourth quarter (ending December 31) to come in at $35.43 billion, representing an increase of 4% from the prior-year period. The company has surpassed the consensus revenue estimates in each of the trailing four quarters, and the consensus EPS estimates in three of the trailing four quarters.
Furthermore, the company’s revenue for the current and next fiscal are expected to rise 2.4% and 1.5% year-over-year to $138.80 billion and $138.78 billion, respectively.
Discounted Valuation
In terms of forward non-GAAP P/E, VZ is currently trading at 7.29x, 48.4% lower than the industry average of 14.11x. The stock’s forward EV/EBITDA multiple of 6.97 is 11.9% lower than the industry average of 7.92. Also, its forward EV/EBIT of 10.82x is 27.9% lower than the industry average of 15.02x.
In addition, in terms of forward Price/Book, the stock is currently trading at 1.74x, 7.6% lower than the industry average of 1.89x. Its forward Price/Cash Flow multiple of 4.17 is 48.3% lower than the 8.07 industry average.
High Profitability
VZ’s trailing-12-month gross profit margin of 57% is 13.2% higher than the 50.32% industry average. Its trailing-12-month EBITDA margin of 32.39% is 73.9% higher than the 18.63% industry average. Likewise, the stock’s trailing-12-month net income margin of 14.22% is 166.5% higher than the industry average of 5.34%.
Furthermore, VZ’s trailing-12-month ROCE, ROTC, and ROTA of 23.45%, 6.37%, and 5.14% compare to the industry averages of 6.35%, 3.56%, and 2.24%, respectively.
POWR Ratings Show Promise
VZ has an overall rating of B, translating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. VZ has a B grade for Growth, consistent with its solid growth prospects. Also, it has a Stability grade of B, in sync with its beta of 0.37.
BMY is ranked #2 out of 20 stocks in the Telecom-Domestic industry.
Beyond what I have stated above, we have also given VZ grades for Value, Growth, Momentum, and Quality. Get access to all VZ ratings here.
Bottom Line
VZ reported impressive third-quarter results, showing revenue growth momentum. Moreover, the company’s cost-saving program and increased focus on its 5G strategy demonstrate its promising growth prospects. The company’s financial discipline positions it to pay increasing dividends to its shareholders.
Therefore, investing in this dividend-paying stock could be wise amid the current uncertain economic conditions.
How Does Verizon Communications Inc. (VZ) Stack Up Against Its Peers?
While VZ has an overall POWR Rating of B, one could also check out these other stocks within the Telecom-Domestic industry with an A (Strong Buy) or B (Buy) rating: Spok Holdings, Inc. (SPOK), Ooma, Inc. (OOMA) and AT&T Inc. (T).
VZ shares fell $37.15 (-100.00%) in premarket trading Friday. Year-to-date, VZ has declined -24.59%, versus a -20.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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