With a market capitalization of $213.20 billion, New York City-based Verizon Communications Inc. (VZ - Get Rating) offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. VZ shares have slumped 17% in price over the past year and 13.1% year-to-date to close its last trading session at $50.79. The stock is currently trading below its 50-day and 200-day moving average and near its 52-week low, which it reached on December 1.

VZ’s $2.56 annual dividend yields 5.01% at the current share price. On December 2, the company declared a 64-cent quarterly dividend, the same as the previous quarter, payable on February 1, 2022. VZ’s dividend payouts have increased at a 2.1% CAGR over the past three years. The company has a record of eight consecutive years of dividend growth. “Our disciplined strategy and execution continue to create short- and long-term value for our shareholders,” said Hans Vestberg, VZ’s Chairman and CEO.

VZ recently announced the acquisition of TracFone Wireless, Inc. and TracFone’s family of brands, aiming to strengthen its wireless network. However, the acquisition led to a $3.13 billion cash payment along with 57,596,544 shares of Verizon stock. The deal also requires an additional $650 million cash consideration. Considering the company’s negative $24.47 billion trailing-12-months levered free cash flow, the acquisition, along with the company’s venture into C-Band spectrum for 5G wireless, could hamper its cash position. Furthermore, VZ reported declining cash flow from operating activities in its latest financial report.

Also, the aviation industry and the FAA have raised concerns that the 5G wireless spectrum poses an air safety risk. VZ had agreed to delay the commercial launch of C-band wireless service until January 5 and take precautionary measures. However, the measures were later evaluated as “inadequate and far too narrow to ensure the safety and economic vitality of the aviation industry.” If the matter is not settled soon, the proposed plan could be further delayed.

Here is what could shape VZ’s performance in the near term:

Mixed Valuation

In terms of forward non-GAAP PEG, VZ is currently trading at 3.46x, which is 178.5% higher than the 1.24x industry average. Also, its 2.90 forward EV/Sales ratio is 18.2% higher than the 2.45 industry average.

However, VZ’s forward P/E is 50.9% lower than the 19.07x  industry average, and its forward EV/EBIT is 26.3% lower than the 16.11x industry average.

Mixed Growth Prospects

VZ’s net income and EPS have declined at CAGRs of 11.9% and 12.1%, respectively, over the past three years. Analysts expect VZ’s revenues to decline 2.5% in the current quarter, 1.6% in the next quarter, and 1.1% in the next year. However, its revenue is expected to increase 4% year-over-year to $133.37 billion in the current year. The company’s EPS is expected to grow 5.8% in the current quarter, 2.3% in the next quarter, and 9.6% in the current  year.

Solid Third-Quarter Earnings Report

VZ’s total operating revenues increased 4.3% year-over-year to $32.92 billion in its fiscal third quarter, ended September 30. Its operating income stood at $8.91 billion, up 16% from the same period last year. And its net income grew 45.5% from the year-ago value to $6.55 billion. The company’s adjusted EPS increased 12.8% year-over-year to $1.41.

POWR Ratings Reflect Uncertainty

VZ has an overall C rating, which translates  to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of C for Value, consistent with its mixed valuation.

VZ also has a C grade for Sentiment. Mixed analyst sentiment about the stock justifies this grade.

Of the 20 stocks in the Telecom – Domestic industry, VZ is ranked #8.

Beyond what I have stated above, one  can also view VZ’s grades for Quality, Growth, Momentum, and Stability here.

View the top-rated stocks in the Telecom – Domestic industry here.

Bottom Line

VZ has been popular among investors looking to hedge against the stock market volatility due to its dividend-paying history and stable returns. However, analysts expect its revenues to decline in the current quarter. Furthermore, its negative trailing-12-months levered free cash flow and its recently reported decline in its cash flow from operations could depress its overall cash position and even hamper its dividend payouts. So, we think it could be wise to wait for a better entry point in this stock.

How Does Verizon Communications Inc. (VZ) Stack Up Against its Peers?

While VZ has an overall POWR Rating of C, one  might want to consider looking at its industry peers, InterDigital Inc. (IDCC - Get Rating), Ooma, Inc. (OOMA - Get Rating), and AT&T Inc. (T - Get Rating), which have a B (Buy) rating.

VZ shares were trading at $50.23 per share on Wednesday morning, down $0.56 (-1.10%). Year-to-date, VZ has declined -10.63%, versus a 26.31% rise in the benchmark S&P 500 index during the same period.

About the Author: Subhasree Kar

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...

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