Verizon Stock – Investor sentiment around Verizon (NYSE:VZ) is near record lows as the company’s stock price hit a 2022 low and is now trading near 10-year lows.
The company has been shunned by small investors, Wall Street analysts (see below) and, perhaps more importantly, until recently one of its largest shareholders – Berkshire Hathaway ( BRK.B ) ( BRK.A ).
Verizon Stock
While analyst ratings rarely indicate long-term success, The Oracle of Omaha’s complete divestment of Verizon was a major blow to the company’s long-term outlook. This prompted me to go back and re-examine my initial investment thesis.
Verizon Stock Forecast For 2023,2024,2025,2030
As a long-term investor myself, I take into account the rapid changes in the positions of major shareholders, but I do not blindly follow other people’s investment strategies, even if it is Warren Buffet. For example, a few years ago Berkshire Hathaway sold all of its holdings in a company that I was seriously considering becoming one of the largest positions in my personal portfolio. Broader investor sentiment for this particular stock was also near record lows, but that didn’t stop me from taking a long position and holding on to it. Fast forward to today, and this company is now among the top performers within my personal portfolio and the Carousel Investor that my subscribers have access to.
In short, subscribers and a weakened outlook for 2023 have been among the big concerns for shareholders over the past year. With Verizon’s competitive position in question, the stock price has fallen and the dividend yield is at record levels.
Verizon’s share price performance has been even worse than that of struggling AT&T ( T ), which has been widely criticized for massively destroying shareholder value with its mega-deals for DirecTV and Time Warner. Meanwhile, T-Mobile ( TMUS ) continued to hit new highs and widen the performance gap.
The performance is the result of reduced guidance for fiscal year 2022 compared to the same year and significantly lower growth in revenue and total EPS for fiscal year 2023.
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With 2022 adjusted EBITDA of $47.9 billion, the current 2023 range shows relatively flat operating profitability for the year. In terms of adjusted earnings per share, however, this year’s expectations are significantly lower than the $5.18 EPS reported for 2022.
Based on these numbers, Verizon currently trades at 8.6 to 9.1 times earnings, depending on the range above.
By comparison, a year earlier on January 25, 2022, when the company reported its fourth-quarter 2021 results and provided initial guidance for fiscal 2022, Verizon was trading at $52.90 per share, or between 9.5 and 9.8 of his previous earnings for the same year.
Of course, not only was the company’s expected earnings a significant drop, but the market is now valuing Verizon at lower multiples than ever before.
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While lower potential growth is often cited as the main reason for this, profitability is far more important in the long run. Additionally, VZ is trading at a deep discount to its current margins and appears to be appreciating a significant reduction in profitability.
On the surface, Verizon appears to be losing customers at a much higher rate than even before the pandemic. The reason I say this is because many retail investors and market commentators seem to look at absolute wireless rates and draw their conclusions accordingly.
However, during the last quarter of 2021, Verizon integrated its recent acquisition of TracFone, a company with mostly prepaid customers.
As a result, the share of Verizon’s prepaid connections grew significantly (see above) and taking into account the much larger quotas of the prepaid segment, the company’s total share increased to about 1.4% in the last quarter of 2021.
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The $7 billion deal for TracFone gave Verizon access to about 20 million subscribers, or about $350 per subscriber, making the company the leader in prepaid.
And in November, we completed our strategic acquisition of TracFone, making Verizon the leading provider in the value segment. This opportunity allows us to deepen our relationship with new clients while providing improved services. TracFone integrates quickly into our work. The acquisition adds 20 million customers to our prepaid model and solidifies Verizon as the leading prepaid provider at Walmart and Best Buy, creating a strong foundation for our retail efforts. Source: Verizon Q4 2021 Earnings Transcript
The deal makes sense because of TracFone’s important synergies as an MVNO dependent on Verizon’s network. More importantly, though, there’s been a significant migration from prepaid to postpaid in recent years (see T-Mobile’s quote below), and Verizon’s recent investments in its network are well-positioned to take advantage of these trends.
As a result of these investments, average revenue per account (ARPA) in Verizon’s postpaid segment has grown steadily in recent years.
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After all, Verizon’s rate in its postpaid segment is not significantly different from that of its larger competitor – AT&T.
The most comparable metrics in the postpaid segment reported by the three main competitors also show no significant differences.
All in all, Verizon doesn’t seem to be doing too badly compared to its peers, and as we saw in a previous article, its valuation multiple has already factored in a significant drop in profitability.
Because of Verizon’s size and the nature of the industry, investing in a company with strong growth prospects is not a rational strategy. High dividend yields combined with high return on capital and relatively low risk are the main reason most people would consider adding VZ to their portfolios.
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In terms of yield, with a pre-dividend yield of 6.3% Verizon is now among the highest yielding stocks within the S&P 500. At the same time, the company has a long history of consistent dividend growth.
Indeed, dividend increases are likely to be suspended in the near term due to recent and high rates of reinvestment in the business, but the dividend is well covered from a cash flow perspective.
As we’ve seen above, current 2023 EPS expectations are in the range of $4.55 to $4.85, which is nearly double the company’s annual dividend payout per share of $2.61.
Free cash flow per share is slightly lower than the annual dividend paid, but we have to keep in mind that capital expenditures will be much lower in the coming years.
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Excluding wireless license acquisitions from Verizon’s capex, the company spent a record amount on capital expenditures compared to depreciation expense in 2022.
(… Source: Verizon Q4 2022 Earnings Transcript
Of the $23.1 billion spent on capital through 2022, Verizon management currently expects to spend just $17 billion, or 26% less, next year.
And as you know, we’re doing all of this as our capital spending budget is projected to fall from $23.1 billion in 2022 to below $19 billion in the middle of our guidance range this year, nearly 20% year-over-year. . year In 2024, we expect our capital stock to be approximately $17 billion, and we expect the lowest capital intensity in over a decade and among the lowest in the industry. Source: Verizon Q4 2022 Earnings Transcript Conclusion
Verizon Communications (vz) Q1 2019 Earnings Report
Verizon’s share price has come under significant pressure in recent years as operating performance has fallen short of initial expectations and the company has continued its ambitious reinvestment program. Selling pressure from Berkshire Hathaway and the impact of its sale on Verizon’s stock price also led to record low investor sentiment.
However, having said that, I see no reason to change my initial investment thesis and Verizon remains in my personal portfolio. Furthermore, with the stock price already established – which in my opinion is an extremely negative scenario, Verizon has become an attractive dividend.
You can access my best conviction ideas across a wide range of sectors by subscribing to The Roundabout Investor, where I find conservatively priced companies with superior competitive positioning. The options listed in the service also exploit market inefficiencies associated with short-term expectations driven by momentum and talk. For more information, follow the given link.
Vladimir Dimitrov is a former strategic consultant with a professional focus on valuation of business and intangible assets. His professional experience includes solving complex business problems through the lens of overall business strategy and various valuation and financial modeling techniques.
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Vladimir also explores the concept of value investing and specifically finds companies with sustainable competitive advantages that trade below their intrinsic value. He complements his bottom-up approach with a holistic view of markets through factor investing techniques.
Vladimir made his first investment in agriculture right out of high school in 2007 and therefore started investing through mutual funds at the bottom of the market in 2009. In the following years, he focused on developing his own investment philosophy and
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