Verizon CommunicationsVZ44,98 $
About company
The history of Verizon originates from the company Bell Atlantic, which was formed as a result of the separation of the monopolist AT&T in 1983. The company operates mainly in the USA. The company is headquartered in New York, the staff consists of more than 118 thousand people.
Verizon is the largest wireless carrier in the United States, from 142.8 million subscribers at the end of 2021. The company is included in the list of the world's largest fortune companies 500.
The company's activities are carried out in two directions:
- Consumer - Wireless and Wired Services and Products, customer-oriented under the Verizon brand, as well as other agreements. Includes such areas: Services, Wireless. The share of the segment at the end of 2021 was 71,1%.
- Business Segment - Wireless and Wired Services and Products, including data transmission services, video- and conferencing, Enterprise Networking Solutions, security services and managed network services, local and long-distance voice services and access to the Internet of Things network.
Includes such areas, as a small and medium-sized business, global enterprises, public sector, wholesale. The share of the segment at the end of 2021 was 23,2%.
Revenue, million dollars
| 2020 | 2021 | Percentage changes | Percentage of totals 2021 of the year | |
|---|---|---|---|---|
| Consumer | 88 533 | 95 300 | 7,6% | 71,1% |
| Business | 30 962 | 31 042 | 0,3% | 23,2% |
| Corporate and other income | 9334 | 7722 | –17,3% | 5,7% |
| Elimination | –537 | –451 | –16% | — |
| Total | 128 292 | 133 613 | 4,1% | 100% |
SEGMENT EBITDA for 2021
| EBITDA in USD million | EBITDA as a percentage | EBITDA margin | |
|---|---|---|---|
| Consumer | 41 634 | 84,7% | 43,7% |
| Business | 7521 | 15,3% | 24,2% |
| Total | 49 155 | 100% | 36,78% |
Financial indicators
At the end of 2021, Verizon's revenue grew due to the growth of the consumer segment by 7,6% and business segment on 0,3%. Operating profit and margin increased due to operating income growth. As a result, net profit increased by 23,27%, and FCF fell on 18,33% due to a decrease in operating cash flows by 5,33%, as well as an increase in capital expenditures for 11,51%. In general, we can state the recovery of the company's indicators after the crisis of 2020.
At the end of 2022, the company expects revenue growth from services by 1-1.5%, Adjusted EBITDA growth by 2-3%. Earnings per share — 5.40—5,55 $ compared to 5,32 $ for 2021. Capital expenditures - $ 16.5-17.5 billion compared to $ 20.3 billion for 2021.
Financial indicators, million dollars
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Revenue | 130 863 | 126 034 | 131 868 | 128 292 | 133 613 |
| Operating profit | 22 278 | 27 414 | 30 378 | 28 798 | 32 448 |
| Operating margin | 17,02% | 21,75% | 23,04% | 22,45% | 24,29% |
| Net profit | 16 039 | 30 101 | 19 265 | 18 348 | 22 618 |
| FCF | 17 681 | 8058 | 17 807 | 23 576 | 19 253 |
Balance sheet indicators
Verizon's assets grew mainly due to the license for wireless communication with 96 to $147.6 billion. Capital increased by additional paid-up capital from 60.4 to 71.9 billion. The company has increased the number of shares since 4,14 up to 4.15 billion units. Total debt increased due to the growth of long-term debt from 123.1 to 143.4 billion. Net debt increased due to an increase in total debt and a decrease in cash and cash equivalents from $22.1 billion to $2.9 billion.
It is worth noting, that despite the significant increase in debt in recent years, the company does not experience problems with servicing its debt obligations. The interest coverage ratio increased to 9.3× in 2021, compared to 5.8× in 2017.. Most of the company's debt payments fall on the period after 2026.
At the end of 2021, the effective interest rate was 3,6%. A significant part of the debt portfolio consists of fixed-rate debt, therefore, changes in interest rates do not have a significant impact on the company's interest payments. Also in the company's plans for the coming years is a reduction in debt..
Balance sheet indicators of the company, million dollars
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Assets | 264 829 | 257 143 | 291 727 | 316 481 | 366 596 |
| Capital | 53 145 | 43 096 | 61 395 | 69 272 | 83 200 |
| Total debt | 113 063 | 115 693 | 111 489 | 129 062 | 150 868 |
| net debt | 110 318 | 113 614 | 108 895 | 106 891 | 148 789 |
Market
In the U.S. mobile market, the key is the fight for the 5G market.. Today Verizon, AT&T, T-Mobile – National Tier One Wireless Carriers, and collectively they control roughly 90% U.S. Wireless Market. And at the moment, based on the coverage area, T-Mobile operator wins the race.
On the other hand, coverage area does not guarantee the growth of the company's financial performance. Based on the average revenue per user (ARPU) T-Mobile matters less, AT&T is the highest rate, a Verizon has a history of growth in this indicator.
According to forecasts, 5G networks will bring 26% revenue from wireless services in 2024. With fixed wireless access, Verizon expects, that revenue growth from this segment will be no less than 3% in 2022, and starting with 2024 - not less 4%.
Despite growth towards 5G, the global wireless market, probably, will be in a stagnant state - this is evidenced by the experience of introducing 4G. Between 2012 and 2018, when 4G coverage has grown since 4 to 61% around the world, the size of the U.S. wireless market grew by less than 1%.
Considering, that the potential of the communications market is limited, Verizon is betting on M deals&A. And the last deal is Tracfone, prepaid mobile provider, purchased for $6.25 billion in November 2021.
Verizon management expects to receive additional income in the amount of one billion dollars, and approximately a billion due to cost synergies by 2025.
The company is also restructuring its business. In September, Verizon closed the sale of Verizon Media Group to Apollo Global Management for 5 billion, while retaining a minority stake.
As a result, in the coming years, one should not expect high growth rates of financial indicators from Verizon.: increased competition for users can be expected, building an ecosystem, cost optimization.
Comparison with competitors
Given the situation on the company's market, wise to know, how effective the company is compared to the nearest competitors.
For comparison, AT&T, T-Mobile, United States Cellular, Comcast Corp.
The revenue growth rate will show us, how successful the company is in its market, are its services in demand?. RoE ratio shows the financial return on the use of a company's capital, allows you to assess the quality of work of financial managers.
As for Verizon animators, then in comparison with the nearest analogues, the company looks overvalued, and compared to the median values of the telecommunications services industry — neutral.
Comparison of company performance
| Revenue growth rate | ROE | ROIC − WACC | |
|---|---|---|---|
| AT&T | 1,01% | 10,92% | 0% |
| Verizon Communications | 1,17% | 28,52% | 4% |
| T-Mobile | 14,56% | 4,46% | 0% |
| United States Cellular Corp | 1,16% | 3,42% | −3% |
| Comcast Corp | 6,61% | 14,69% | 0% |
Company multipliers
| P / E | P / BV | P / S | EV / EBITDA | |
|---|---|---|---|---|
| Verizon Communications | 9,46 | 2,44 | 1,51 | 8 |
| AT&T | 8,18 | 0,83 | 0,87 | 6,27 |
| T-Mobile | 54,34 | 2,18 | 1,9 | 11,67 |
| United States Cellular Corporation | 18,05 | 0,55 | 0,63 | 6,34 |
| Comcast Corporation | 12,78 | 1,88 | 1,53 | 7 |
| Mean | 20,56 | 1,58 | 1,29 | 7,86 |
| Rise / fall potential | 117,36% | −35,41% | −14,7% | −1,8% |
| Telecommunication services industry median | 16,48 | 1,97 | 1,6 | 7,41 |
| Rise / fall potential | 74,21% | −19,26% | 5,96% | −7,38% |
DDM model
Considering, that the analysis of multipliers did not give a definite answer on the feasibility of buying these shares, it was decided to draw up a simple DDM-model based on discounting future dividends by 5 years to determine the fair price of a share. The data on the risk-free rate were based on the data on the average monthly return of the index of five- and ten-year US government bonds.
It is worth noting, that Verizon Beta below 1, — this indicates, that the company's shares are less subject to the general market trend.
When constructing the forecast of financial indicators, analysts' forecasts were taken into account, average growth rates of indicators, risk premium data. The model is calculated with two discount rates and predictive prices to improve reliability.
As a result, the target price of the share, calculated by this method, is 70.5—77.7 $, growth potential to current levels — 45—60%. To make a decision to buy shares using discounting models, upside potential from 20%. Respectively, Verizon shares fall within this range and may be considered for purchases at current levels..
Dividends and buyback program
At the end of 2021, the company sent $ 10.4 billion to pay dividends, which brought potential profit 4,85%. VZ shares are a classic dividend story: company 22 continuously pays dividends for years. Dividend growth rate for 5 years was 1,67%, and the payout ratio did not exceed 55%.
The Company does not conduct buyback programs. However, management said, that will consider this possibility, when the ratio of net unsecured debt to adjusted EBITDA of 2.25 is reached×. At the end of the fourth quarter of 2021, the ratio was 2.8×.
Profitability indicators
| 2017 | 2018 | 2019 | 2020 | 2021 | |
|---|---|---|---|---|---|
| Dividend per share | 2,37 $ | 2,32 $ | 2,42 $ | 2,47 $ | 2,52 $ |
| Payout ratio | 30,22% | 59,55% | 62,28% | 55,94% | 47,42% |
| Potential dividend yield | 4,22% | 4,39% | 3,95% | 4,21% | 4,85% |
What's the bottom line?
At the end of 2021, Verizon showed an increase in profit and revenue and recovered from the coronacrisis. The company increased its debt burden to a record level, but despite this, the level of debt does not cause concern.
The company looks more efficient in management, than closest competitors. The main market of the company is wireless communication, That, according to forecasts, will show minimal growth: investors should not count on the rapid growth of stock quotes.
In conditions of uncertainty in the market, companies are safe, producing essential goods and services, which include companies from the telecom sector, which have low volatility.
To some extent, VZ shares can be perceived as a quasi-bond. Given the DDM model, you can add this stock to your portfolio, to receive dividends.
