VZ: Is Verizon Stock a Buy at Its Lowest Level in Years?

Telecom giant Verizon Communications Inc. (VZ) offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.

For the fiscal third quarter (ended September 2022), VZ reported 189,000 wireless retail postpaid phone net losses in its Consumer segment due to elevated churn, partially because of its recent pricing actions. As a result, the company is increasingly focusing on cost-cutting measures. Last week, the company laid off a small portion of its workforce.

The company is also focused on executing its ambitious 5G strategy. CEO Hans Vestberg stated that VZ is in the process of covering every major market and accelerating its C-Band network build.

VZ’s stock is down 28.9% over the past year and 27.5% year-to-date to close its last trading session at $37.67. It is trading just 9% higher than its 52-week low of $34.55, which it attained on October 21, the day its third-quarter earnings report was released. However, it has gained 4.1% intraday.

While VZ is trading near its multi-year low levels, here are the factors that could influence the stock’s performance in the upcoming months:

Discounted Valuation

In terms of its forward P/E, VZ is trading at 7.98x, 47.5% lower than the industry average of 15.20x. The stock’s forward EV/EBIT multiple of 10.86 is 27.4% lower than the industry average of 14.97. In terms of its forward Price/Cash Flow, VZ is trading at 4.17x, 48.7% lower than the industry average of 8.11x.

Impressive Profit Margins

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VZ’s trailing-12-month EBIT margin and net income margin of 19.73% and 14.22% are 116% and 197% higher than their respective industry averages of 9.13% and 4.79%. Its trailing-12-month ROE, ROTC, and ROA of 23.45%, 6.37%, and 5.14% are 269.2%, 79.3%, and 140.2% higher than the industry averages of 6.35%, 3.56%, and 2.14%, respectively.

Top and Bottom Line Beat Estimates

For the fiscal third quarter ended September 30, VZ’s total operating revenues increased 4% year-over-year to $34.24 billion, which topped the consensus estimate of $33.79 billion by 1.3%. Its wireless equipment revenue rose 22.9% from the prior-year quarter to $6.58 billion.

Although its adjusted EPS declined 7% from the same period the prior year to $1.32, it topped the consensus estimate of $1.29 by $0.03 or 2.5%.

Reliable Dividend

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. The dividend is payable to shareholders on November 1. This is the 16th consecutive year the company’s board has approved a quarterly dividend increase.

VZ’s annual dividend of $2.61 yields 6.93% on the current price. The company’s dividend payouts have increased at a 2% CAGR over the past three years and a 2.1% CAGR over the past five years. It has a four-year average yield of 4.55%.

POWR Ratings Reflect Promising Prospects

VZ’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different 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 Stability grade of B, in sync with its beta of 0.37.

The stock has a B grade for Growth, consistent with its EPS and total assets growth at 5.7% and 9.6% CAGRs over the past three years, respectively.

In the 19-stock Telecom – Domestic industry, it is ranked #3.

Click here to see the additional POWR Ratings for VZ (Value, Momentum, Sentiment, and Quality).

View all the top stocks in the Telecom – Domestic industry here.

Bottom Line

VZ’s cost-cutting measures might support its bottom line in the next quarter. Moreover, the company still enjoys top-line growth and pays a high-yielding dividend to its shareholders. Hence, we believe the stock is an excellent pick at the current price level.

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

While VZ has an overall POWR Rating of B, one might want to consider looking at its industry peer, Spok Holdings, Inc. (SPOK), which has an overall A (Strong Buy) rating.

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VZ shares were trading at $37.43 per share on Monday afternoon, down $0.24 (-0.64%). Year-to-date, VZ has declined -24.02%, versus a -17.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...