VERIZON VZ : DETAILED FUNDAMENTAL ANALYSIS | SHORT VIEW ⭐️Despite the fact that VZ stock has consistently lagged behind the S&P 500, it is still a stock of interest to income-oriented investors because of its dividend yield. Nonetheless, if 5G wireless services once again lead to revenue and earnings growth, Verizon stock could become much more attractive.
The problem is that competition in the 5G wireless market is foreseen to strengthen. T-Mobile US's acquisition of Sprint has formed a more robust contender for Verizon Communications and AT&T. T-Mobile owns the most radio spectrum for 5G wireless services.
Moreover, AT&T lately decided to merge its WarnerMedia division with Discovery. As a result, a reduced AT&T is assumed to have more funds to invest in 5G wireless technology and fiber services.
VZ on May 3 sold 90 percent of its media and advertising business to Apollo Global Management for $5 billion. The deal is planned to conclude by the end of this year.
Besides, Verizon stock was the top bidder in the recent state auction of the mid-band radio spectrum. Verizon spent $53 billion, including incentive payments to satellite operators and clearing costs. This spending will postpone the VZ stock buyback for several years.
At its March 10 investor day, Verizon said it expects revenue growth of 4% or more in 2024 as the company expands 5G wireless services. The company forecasts revenue growth of 2 percent in 2021, the same as its previous forecast. The company says that growth will increase to 3% in 2022 and 2023.
Now that Verizon owns enough 5G midrange spectrum, network development will be pivotal. Verizon plans to reach 175 million users by the end of 2022 with 5G services based on a medium-frequency spectrum that delivers faster data speeds.
Also, Verizon stated that 5G mobile services will lead more consumers to switch to unlimited monthly plans. Currently, 61 percent of subscribers have unlimited data plans, up from 40 percent three years ago.
Verizon also told analysts that it plans to use a 5G mid-band spectrum to provide fixed broadband services in homes. Currently, cable TV companies dominate residential broadband.
The telecom company said its fixed broadband service will reach 30 million homes by the end of 2023.
The management awaits 5G business services to expand next year. The company is investing in "mobile computing centers" that provide private 5G business services.
The telecommunications company plans to spend another $10 billion over the next three years to build a 5G wireless network infrastructure. That's about $3.3 billion a year. That's in addition to the $18 billion a year the company already spends to maintain its entire network. Some of that money is already earmarked for 5G.
Verizon and rival telecommunications company AT&T are seen as defensive stocks because of their high dividends. Verizon stock, a component of the Dow, pays a 4.6 percent dividend.
Verizon has less debt than AT&T, which acquired media giant Time Warner and previously satellite TV company DirecTV. Although Verizon has avoided major acquisitions, its attempt to enter the media business by acquiring AOL and Yahoo was ultimately a failure. In 2018, the company wrote off the value of its media business, called Oath, to the tune of $4.6 billion.
New York-based Verizon has partnered with Walt Disney on streaming video. In August, Disney and Verizon expanded their streaming partnership to include Hulu and ESPN+. Verizon is also partnering with Apple Music and sports leagues.
Verizon is much more exposed to the U.S. wireless market than rival telecommunications company AT&T. Verizon derives nearly 85% of its adjusted profits from its wireless business.
The company has reduced debt since it bought Vodafone Group's 45% stake in the wireless joint venture for $130 billion in early 2014.
In addition, the company has new senior management. CEO Hans Vestberg was CEO of network equipment maker Ericsson before joining Verizon. Vestberg and Chief Strategy Officer Rima Qureshi, also an Ericsson veteran, joined Verizon five years ago.
Ronan Dunne, Verizon's head of consumer business, was previously CEO of the U.K. wireless company O2. He joined Verizon in 2016.
To be sure, revenue growth remains an issue. Verizon's long-term problem is that the U.S. wireless market is oversaturated.
Many consumers are putting off upgrading to new smartphones. In addition, data-intensive mobile video isn't generating much revenue.
For the March quarter, Verizon reported earnings of $1.31 per adjusted share, excluding items. Revenue rose 4 percent to $32.9 billion.
Last year, Verizon earned $1.26 per share on revenue of $31.6 billion. Analysts had projected Verizon earnings of $1.29 per share on revenue of $32.47 billion.
Wireless revenue rose 2.4 percent to $16.7 billion. Verizon said it lost 178,000 postpaid wireless subscribers against analysts' forecast of 198,000.
Analysts expect wireless subscriber growth to resume in the June quarter.
For 2021, Verizon expects adjusted earnings per share in the range of $5 to $5.15 per share. The company expects total revenue growth to be at least 2 percent, including wireless revenue growth of at least 3 percent.
