A world leader in delivering innovations in communications, Verizon (NYSE:VZ) has its success tied to delivering integrated business solutions to customers in more than 150 countries. Its success also comes from the deployment of 4G LTE network to over 90% of the US population. The stock has risen 20% since the past six months. While its strategic decisions will ultimately improve its stock price, there are even more bright opportunities in the horizon. It is worth considering the state of Verizon's surrounding macroeconomic environment.
Verizon is operating in an industry that is expanding, to say the least. Investment firm Veronis Suhler Stevenson expects the U.S. communications industry to see a compound annual growth rate of 5.2 percent over the next few years to reach $1.455 trillion in revenues by 2016. Entertainment media spending will speedup its growth, while subscription TV will expand more.
Hedge fund and insider activity
Insider and fundamental analysis should have investors showing greater interest in the stock sooner rather than later. One way to assess the company is to look at the buying and selling decisions of insiders and hedge fund managers. In Verizon's care, there have been a lot of it. However, no insider purchases have taken place within the last year, but a total number of 13 officials sold their shares. Six insiders have retained the stock. Of insiders holding Verizon's shares, the most active have been C. Lowell Mcadam, an officer of the company, John Stafford, a director of the company, and Jr. Clarence Otis, another director of the company.
Some hedge fund managers also show interest in Verizon. As of March this year, five of the five funds with at least 1% of their holdings in the stock elected to retain positions. Three funds with at least 0.15% of the stock elected to increase stakes. John Overdeck and David Siegel's Two Sigma Advisors increased stakes by 2,000%. Jean-Marie Eveillard's First Eagle Investment Management increased its shares by 557,400%. While Daniel Och increased his stake by 300%.
It is clear that three factors with resources for analyzing Verizon - insider trading, hedge fund activity, and macroeconomic environment - are showing something fundamentally right with this stock. When analyzing its last quarterly report, investors can also have hope.
Verizon showed a second-quarter revenue increase of 7.5% compared with the year-ago quarter. This trumps AT&T (NYSE:T) (1.6%) and Sprint (NYSE:S) (0.005%). Verizon grew its operating income in the last quarter by 16% year-on-year, far above AT&T (-12%). Verizon saw increases in profitability through strategic investments in wireless, FiOS and global networks. It was also focused on providing the best portfolio of products on the most reliable networks.
Its earnings per share showed a 21% increase year-on-year, compared with 7.6% for AT&T and -17% for Sprint. Total revenues for its wireless sector were $20.0 billion, up 7.5 percent year over year. Service revenues in the quarter totaled $17.1 billion, up 8.3 percent year over year. Retail service revenues grew 7.8 percent year over year, to $16.4 billion.
When analyzing some of the valuation ratios, Verizon shows stability. Let us begin with its EPS growth in the current quarter. This gives a good picture of the rate at which it is growing its profitability per unit of equity. It is also an important indicator of its financial health because it represents the rate of net-income-per-share growth.
Getting to the metrics, Verizon's EPS growth in the current quarter is 17.20%, which is higher than 7.90% for AT&T, -30.60 for the sector, and 12.80% for S&P 500. Another competitor, Sprint did not perform competitively in this metric due to high restructuring costs.
Since Verizon is operating in an industry that is showing signs of expansion, it is expected to show an improvement in the next five years. Its EPS growth in 2018 is estimated at 10.46, which is higher than Sprint (5%), AT&T (6.46%), and the sector average (6.69%). If all these reasons are not enough to persuade investors about Verizon, they need only look at its dividends to receive final justification. Of course, at 4.41%, it is lower than 5.0% for AT&T. But it shows that the stock's returns are impressive.
Some institutional ownership is preferred in an organization. It is an important indicator to determine the financial health of a company. Fortunately, institutions own 55.52% of Verizon's stock. From its positive hedge fund sentiments to its fundamentals, Verizon deserves some consideration for long-term investments.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.