Telecom major Verizon Communications Inc. (VZ) has fallen 25% in price year-to-date and 22.5% over the past year to close the last trading session at $38.98. 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.

VZ surpassed the consensus EPS and revenue estimates in the third quarter. Its EPS was 2.5% higher than analyst estimates, and its revenue beat the consensus estimate by 1.3%.

VZ is currently trading at an attractive valuation. In terms of forward non-GAAP P/E, VZ’s 7.50x is 51.7% lower than the 15.52x industry average. Its forward EV/EBIT of 10.98x is 29% lower than the 15.46x industry average. Also, the stock’s 7.07x forward EV/EBITDA is 16.4% lower than the 8.46x industry average.

During the third quarter, VZ’s total broadband net additions rose by 109,000 sequentially to 377,000. Its wireless retail postpaid phone gross adds increased 4.9% year-over-year to 2.60 million, and its wireless postpaid upgrades rose 10.6% year-over-year to 5.60 million. In addition, its postpaid phone churn came at 0.92%, compared to 0.74% in the year-ago period.

VZ CFO Matt Ellis said, “The actions we have taken in the previous two quarters are gaining traction in the marketplace. We expect that we will be able to build on this momentum into the future.”

The company undertook cost-saving and pricing measures to improve its operational and financial performance. On October 27, 2022, VZ laid off a few of its workers to cut costs. The company also focuses on its 5G strategy by covering every major market and accelerating its C-band network build. VZ Chairman and CEO Hans Vestberg said, “We are on track to reach 200 million POPs within the first-quarter 2023.”

The company maintained its previous guidance. It expects growth of wireless service revenue between 8.5% and 9.5%. Its adjusted EPS is expected to come between $5.10 and $5.25. Wall Street analysts expect the stock to hit $45.86 in the near term, indicating a potential upside of 17.7%.

The company also pays reliable dividends. It has increased its dividend for 16 consecutive years. VZ pays a $2.61 per share dividend annually, which translates to a 6.70% yield on the current share price. Its four-year dividend yield is 4.61%. The company’s dividend payouts have grown at CAGRs of 2% and 2.1% over the past three years and five years, respectively.

Here’s what could influence VZ’s performance in the upcoming months:

Robust Financials

VZ’s total operating revenue increased 4% year-over-year to $34.24 billion for the third quarter ended September 30, 2022. The company’s wireless equipment revenue rose 2.9% year-over-year to $6.58 billion. Its wireless service revenue came in at $18.80 billion, up 10% year-over-year.

Its total broadband connections increased 51.1% year-over-year to $790,000. In addition, its consolidated adjusted EBITDA increased 2.9% sequentially to $12.21 billion.

Favorable Analyst Estimates

Analysts expect VZ’s revenue for the quarter ending December 31, 2022, to increase 4% year-over-year to $35.41 billion. Its revenue for fiscal 2022 and 2023 is expected to increase 2.5% and 1.5% year-over-year to $136.89 billion and $138.87 billion, respectively.

It surpassed the consensus revenue estimates in each of the trailing four quarters and the consensus EPS estimates in three of the trailing four quarters.

High Profitability

In terms of the trailing-12-month gross profit margin, VZ’s 56.97% is 13.2% higher than the 50.32% industry average. Likewise, its 32.02% trailing-12-month EBITDA margin is 79.5% higher than the industry average of 17.84%. Furthermore, the stock’s 16.39% trailing-12-month Capex/Sales is 311% higher than the industry average of 3.99%.

POWR Ratings Show Promise

VZ has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 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 B grade for Stability, in sync with its 0.36 beta. It has a B grade for Growth, consistent with its solid growth prospects.

VZ is ranked #2 out of 19 stocks in the Telecom – Domestic industry. Click here to access VZ’s Value, Momentum, Sentiment, and Quality ratings.

Bottom Line

Despite the uncertain macroeconomic environment, VZ’s revenue and earnings were higher than analyst expectations in the last reported quarter. The company’s cost-saving program and increased focus on its 5G strategy demonstrate its strong growth prospects. Its strong balance sheet has allowed it to raise its dividends for 16 consecutive years.

VZ is currently trading at a discount to its peers. Given its robust financials, solid dividend payouts, high profitability, and favorable analyst estimates, it could be wise to buy the stock now.

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

VZ has an overall POWR Rating of B, equating to a Buy rating. 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 were trading at $38.64 per share on Thursday morning, down $0.34 (-0.87%). Year-to-date, VZ has declined -21.57%, versus a -13.67% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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