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Verizon Currently On The Clearance Rack, Time To Buy
- Verizon is currently on sale as a price war has broken out in the telecom space.
- The sell-off in telecom shares offers a patient long-term investor an appealing entry point.
- As detailed below, I expect Verizon to return roughly 60% over the next five years.
- Wireless service providers have been forced to compete on price, leading some competitors to cut margins and increase subsidies, while AT&T and Verizon stand strong due to brand.
- Verizon is currently trading at an unjustified discount of over 20% providing investors an entry point to realize capital appreciation and income generation through a healthy dividend.
- Using comparable analysis, forward looking multiples, and a dividend discount model Verizon is steeply undervalued.
- VZ faces lower margins, higher wireless disconnects and the daunting task of paying off $110 billion in debt, paying dividends and making capital investments.
- The only way to alleviate these issues is with higher margins.
- A REIT could drive profits higher and create shareholder confidence in the process.
Verizon: A Golden Dividend Growth Opportunity Reveals Itself
- Verizon shares have plummeted over 11% in the past month.
- This has driven the yield on the shares up significantly in short order.
- Verizon appears to be in the right place at the right time. The company is making all the right moves to create value for investors.
- The company is focused on return of capital to shareholders with a robust dividend. Verizon appears to be an excellent dividend growth opportunity presently.
Verizon Vs. Vodafone: One Company Hit A Home Run With Last Year's Wireless Deal
- What did investors think after the Wireless deal was announced versus what we know today?
- How has the market for Verizon's Wireless market changed over the last year?
- How has Vodafone spent the money?
- Right now, which has come out on top, and is the better investment opportunity?
- VZ fell 4% on Tuesday and another 1.6% on Wednesday as investors worried about the Q4 update.
- Seasonal customer phone upgrades are the primary reason for the margin decline and are transitory in nature.
- With their smaller scale, TMUS and S will likely not be able to consistently win business from VZ thanks to its leading network.
- At less than 13x forward earnings and with a nice dividend yield, investors should be buy on this weakness.
- The reasons I've held VZ shares this long no longer apply.
- Three actions on behalf of management could have a negative long-term effect.
- VZ's recent warning serves as proof that pricing pressure is a bigger deal than many VZ investors considered.
Verizon: Does Current Price War Mean Long-Term Damage?
- Verizon expects Q4 margins to come under continued pressure, continuing trends seen in Q3.
- Sprint and T-Mobile are unlikely to be able to continue aggressive discounting indefinitely without causing irreparable damage to their respective businesses.
- I recently purchased Verizon, and am comfortable steadily accumulating Verizon for my dividend accumulation portfolio.
- Verizon confirms that a competitive domestic wireless market is pressuring margins.
- Sprint only recently directly attacked Verizon customers suggesting the pressures are not short-term in nature.
- Verizon is no longer cheap based on a large debt load.
- Verizon warned on Monday that EBITDA will be pressured, thanks to higher retail postpaid disconnects and a highly competitive wireless environment.
- Yet, nothing has really changed within the industry with AT&T or TMUS.
- Therefore, has Sprint done something that may be causing Verizon problems?
- Verizon Wireless has not reduced its dividend payments in 30 years.
- The company is the leader in wireless with a market share of 34%.
- Verizon's solid dividend yield and future growth prospects make it a compelling investment for exposure to US telecommunications.
- Is Verizon overvalued, undervalued or fairly valued?
Why Dividend Growth Investors Should Buy Verizon Instead Of AT&T Or Sprint
- AT&T has a higher dividend yield than Verizon, but weaker earnings growth and lower dividend growth.
- Sprint's inconsistent profitability and no dividend make it too speculative to buy.
- Verizon offers the best mix of revenue and earnings growth, along with a high dividend yield and solid dividend growth. This makes it the best pick of the three.
Verizon Powers Forward After Delivering Strong Third Quarter Results
- Third quarter results show solid growth in wireless segment and FiOS.
- VZ has ability to add new subscribers with rising ARPA and maintain lower churn in competitive environment.
- Company eager to participate in upcoming spectrum auction.
Verizon Posts Solid Third Quarter Results As Competition Continues To Toughen
- Verizon’s third quarter highlights reported total revenue of $31.6 billion, growing by 4.3% year on year and by 0.3% sequentially. Net income increased 68.2% over the third quarter of 2013.
- Earnings per share were reported at 89 cents and grew by 15.6% relative to last year.
- Margins for the company eroded as price competition stiffened in the market. Further margin erosion is expected in the future as competition is showing signs of heating up.
- Share prices have remained relatively stable over the course of the past six months. The yearly range for share prices was reported at $45.45-$53.66.
- The price target for shares is of $53.71. The company offers high dividend yield of 4.5%, and trades at a P/E ratio of 10.54.
Solid Growth Rate And Rewarding Shareholders Key Features Of Verizon
- Company keeps translating operational success into cash flow growth.
- VZ’s capital allocation strategy being focused on sharing success with shareholders through dividend payments remains secure.
- Company offers attractive dividend yield of 4.5%.
Is High-Yielding Verizon Worth A Position In Your Portfolio Right Now?
- The dividend is pretty large and is only at a 47% payout ratio of trailing twelve month earnings.
- I calculate a bit more reward than risk at these current levels.
- The one thing I don't like is that 2015 earnings are expected to be less than the trailing twelve month earnings.
Update: Impressive Growth In Key Metrics Shows Verizon Is One Of The Best Picks In The Sector
- The company announced its third quarter earnings.
- Verizon recorded impressive growth in key metrics.
- We maintain that Verizon is one of the best picks in the sector.
- Most Q3 wireless metrics were disappointing as Verizon started to react to Sprint’s aggressive pricing initiatives.
- Pressure is mounting on Verizon in the seasonally-strong Q4 as Sprint rolls out a compelling iPhone 6 leasing plan.
- We remain convinced that Verizon will have to implement 5% to 10% price cuts in the next 12-24 months, with a -4% to -8% impact on EBITDA.
Wed, Dec. 24, 9:09 AM
- Facebook (NASDAQ:FB) signs a deal with the NFL for the rights to video clips.
- The league has been tight with access to game highlights in the past, even precluding some broadcast partners from streaming game video clips to mobile devices.
- The video highlights on Facebook will be followed by advertisements from Verizon (NYSE:VZ).
- The initiative starts next week just in time for the start of the NFL playoff season.
- What to watch: The high-profile deal could send a chill through the C-suites of broadcasters due to the NFL's strong ties to Madison Avenue ad agencies.
Wed, Dec. 17, 11:18 AM
- "Our downgrade reflects higher costs of spectrum, higher churn and lower margins due to intensifying wireless competition and lower target multiples to reflect an uncertain outlook as the competitive landscape shifts," says Goldman, cutting its rating to Neutral and lowering its target by $7 to $48.
- The firm has cut its Q4 Verizon (VZ -0.1%) EPS estimate by $0.06 to $0.71, and its 2015 estimate by $0.14 to $3.67.
- Goldman's move follows a Dec. 8 warning (blamed on promos, strong phone upgrades, and growing retail postpaid disconnects) that prompted a Macquarie downgrade, as well as cautious remarks from other sell-siders about growing price pressure.
- Verizon is close to its 52-week low of $45.09. Shares go for 19x 2015E EPS after factoring net debt. The dividend yield is at 4.8%.
Tue, Dec. 9, 1:09 PM
- Though Verizon's (VZ -4.2%) 4G network buildout is largely complete (at least as far as macro base stations go), the carrier's wireless capex will keep trending higher as it works to keep up with data traffic growth, CFO Fran Shammo stated at a UBS conference. "The day that we start to cut wireless capex, that's the day that we should start to wonder where the future of the business is going."
- On the other hand, wireline capex is expected to keep falling. While Verizon's wireless service revenue rose 4.8% Y/Y in Q4, wireline revenue (hurt by voice connection declines) fell 0.8%. Official 2015 capex guidance will be provided in Verizon's Q4 report.
- Shammo's remarks suggest Verizon will spend more aggressively than AT&T, which recently forecast its capex would fall by $3B next year to $18B. The carrier has long argued its network coverage/capacity investments allow it to charge a premium; a year ago, Verizon began tripling 4G capacity in large markets by launching a new network in the high-frequency AWS band.
- Shammo adds his company is uninterested in doing a major international acquisition, and doesn't plan to carry out buybacks until its debt load is cut. Thanks in part to the Vodafone deal, Verizon had $101B in net debt at the end of Q3.
- Earlier: Verizon's Q4 outlook; Baird's downgrade.
Tue, Dec. 9, 9:17 AM
- Believing yesterday afternoon's Q4 pre-announcement points to growing competitive challenges, Baird has downgraded Verizon (NYSE:VZ) to Neutral, and cut its target by $4 to $50.
- Macquarie thinks Sprint's new price plans are taking a toll. Canaccord also believes competitive pressures are growing, but is staying bullish.
- Verizon has fallen to its lowest levels since May, albeit after trading in a fairly narrow range for month.
Mon, Dec. 8, 4:35 PM
- Verizon (NYSE:VZ) expects promotional offers and strong phone upgrade activity will "put short-term pressure on its wireless segment EBITDA and EBITDA service margin ... as well as its consolidated EBITDA margin (non-GAAP) and earnings per share."
- In addition, Verizon states "total retail postpaid disconnects are trending higher both sequentially and year over year in this highly competitive and promotion-filled fourth quarter."
- T-Mobile has long been aggressively undercutting Verizon and AT&T's pricing, and Sprint has stepped up its efforts to do the same under new CEO Marcelo Claure. Verizon has been less willing than AT&T to return fire, but has nonetheless done so occasionally.
- The percent of customers opting for Verizon's Edge smartphone installment plans (eliminates traditional phone subsidies) is "tracking to 24 percent," up 2x from Q3's 12%. Retail postpaid gross adds are still expected to be up Q/Q and Y/Y in Q4, and wireline EBITDA margin is still on track to expand in 2014.
- VZ -1% AH.
Thu, Dec. 4, 12:39 PM
Tue, Dec. 2, 11:49 AM
- In a promo that starts on Friday, Sprint (S -1.2%) will offer AT&T (T -1%) and Verizon (VZ -0.7%) subs who switch to Sprint unlimited talk/text plans similar to the ones they're currently on a 50% price cut.
- One catch: Users have to trade in their existing AT&T/Verizon phones, and make an unsubsidized purchase of a Sprint phone (via leasing, installment plans, or a regular retail purchase).
- A Sprint rep "will select the service plan that most closely matches the data allowance" of a user's AT&T/Verizon plan. The carrier will cover up to $350 worth of early termination fees and installment plan balances per line.
- The offer is the latest in a series of aggressive promos and price cuts launched by new Sprint CEO Marcelo Claure, who has made a priority out of halting postpaid share losses. In addition to AT&T/Verizon, the promo takes aim at T-Mobile (TMUS -0.4%), which has been grabbing postpaid share (especially on the low-end) with its own aggressive offers.
- T-Mobile and Verizon's wireless service revenue respectively rose 10.6% and 4.8% in Q3, while AT&T and Sprint's fell 0.2% and 5%.
Mon, Nov. 24, 10:26 AM
- Citing higher spectrum and network investment costs, and the revenue impact of tougher price competition, Citi's Michael Rolling has downgraded Verizon (VZ -1.9%) to Neutral. AT&T (T -1.9%) is following Verizon lower.
- Rollins: "We believe the wireless industry is experiencing a great disconnect between the growth in data traffic and the growth in revenue ... We continue to fear that recent promotions create risk that the wireless industry at large may not be able to capture substantial incremental revenue from the rise in data consumption over time."
- Verizon has largely maintained its premium pricing in the face of major price cuts from T-Mobile and Sprint, but the carrier has been offering more data promos as of late. AT&T has been more willing to return fire, and has seen its wireless service growth revenue evaporate along the way.
- Last Friday: FCC auction bids hit $33B
Sat, Nov. 22, 3:37 PM
- The Rayno Report states Verizon (NYSE:VZ) has launched a major trial of bare-metal (commodity) switches running on a networking OS and SDN switching software respectively supplied by startups Cumulus Networks and Pica8.
- Light Reading backs up the report, while adding Verizon "aims to determine whether bare-metal switches ... could eventually replace more expensive, proprietary Juniper Networks Inc. (NYSE:JNPR) equipment." Nonetheless, Rayno reports Juniper is a part of the trial, supplying "routing and switching technology that helps tie the network together with VXLAN [networking virtualization] technology."
- Though the trial is in its early stages, both sites report hearing it's a big deal, given the potential for bare-metal/white-box gear to replace proprietary hardware on a large scale. "[Verizon] can reduce their costs massively," says a Rayno source. The trial coincides with the deployment by Verizon's cloud services ops of an SDN solution using server-based hardware from Super Micro (NASDAQ:SMCI).
- Cisco (NASDAQ:CSCO), which maintains a 60%+ data center switch share and a leading position in the carrier router market, has already called white-box hardware its biggest threat. Internet giants have been quick to embrace SDN/white-box solutions - Facebook has even open-sourced a data center switch design - and AT&T is looking to adopt SDN through its Domain 2.0 initiative.
- Cisco's recently-launched ACI/APIC SDN/networking virtualization solution is gaining traction within the company's enterprise base, but critics call it too expensive/proprietary - pricing for an APIC controller runs from $40K-$58K, and software licenses for ACI-capable switches run from $3K-$15K. Meanwhile, Verizon, AT&T, and other carriers are hungry to cut wireline capex.
- Juniper has adopted an SDN strategy that's more friendly to open platforms, but there might be some internal dissent on that front. Rayno reports recently-ousted CEO Shaygan Kheradpir "was more pro-SDN than the existing Juniper management, which is more conservative about protecting its installed base."
Fri, Nov. 21, 5:22 PM
- Following 26 rounds, total bids in the FCC's AWS-3 spectrum auction have reached $33B - up from $24B two days ago. Though the auction's pace has slowed, more than $1B worth of bids were still tallied in the latest round.
- Walter Piecyk observes the average bid is now at $2.04/MHz./POP, far above his initial estimate range of $0.75-$1.25, and that it implies DISH's existing spectrum assets are worth over $73/share alone. Dish rose 2.1% today to $73.70.
- Tim Farrar thinks Dish may have bid over $10B, as it tries to both add to its spectrum portfolio (thus increasing its strategic value to carriers) and inflate the value of its existing assets. In addition to bidding against AT&T, Verizon, and T-Mobile for paired spectrum assets (the auction's main prize), Dish is expected to be the winning bidder for 15MHz. of unpaired spectrum.
- Meanwhile, the FCC has announced it will vote on rules for its 600MHz. incentive auction (due in 2016, and expected to be even bigger) in December. If approved, the rules will then be opened for public comment.
- Sticker shock? While the S&P rose 1.2% this week, AT&T (NYSE:T) fell 1.7% and Verizon (NYSE:VZ) fell 2.5%.
Wed, Nov. 19, 6:48 PM
- Bidding in the FCC's AWS-3 spectrum auction has reached $24.1B barely 24 hours after topping $14B. Through 15 rounds, $1.19B alone was bid on a 10x10 MHz. license for the NYC area.
- "While bids could suddenly slow down, the auction appears on pace to blow through the top end of our expected range," writes BTIG's Walter Piecyk. Whereas Piecyk initially forecast an average bid of $0.75-$1.25/MHz./POP, spending has already topped $1.50/MHz./POP.
- Deep-pocketed AT&T (NYSE:T) and Verizon (NYSE:VZ) are likely the "most aggressive bidders," notes JPMorgan's Philip Cusick; he suspects T-Mobile (NYSE:TMUS) is bidding more cautiously. New Street Research thinks AT&T and Verizon "will likely both go after a 10x10 MHz pair in all of the critical markets."
- Tim Farrar suspects DISH is bidding up prices on the assumption AT&T/Verizon will respond by upping their bids regardless of the cost. This morning, Piecyk estimated the auction had served to increase the value of Dish's existing spectrum to ~$2/MHz./POP from ~$1.50/MHz./POP, thereby making Dish worth $104/share rather than a prior estimate of $85/share. Dish rose 10% in regular trading.
- Though bidding is expected to slow down soon, it might not fully end for a few more weeks. Until then, the FCC won't disclose the names of winning bidders, or how much they're paying.
Tue, Nov. 18, 4:09 PM
- Following 14 rounds, total bids in the FCC's AWS-3 (high-band) spectrum auction have reached $14.18B. Bids have been placed for 1,303 of the 1,614 available licenses, and a $10.1B aggregate reserve price has been surpassed.
- AT&T (T -0.4%), Verizon (VZ -0.3%), T-Mobile (TMUS -0.3%), and Dish (DISH +4%) are among the companies bidding on the spectrum, which includes paired licenses (50GHz. altogether) in the 1.7GHz. and 2.1GHz. bands (good for high-density urban areas). T-Mobile raised debt ahead of the auction to help finance its efforts.
- The furious bidding pace highlights the strong interest U.S. carriers have in growing their spectrum portfolios to cope with rapid mobile data traffic growth. An even bigger auction for 600MHz. (low-band) spectrum was recently delayed until 2016; AT&T and Verizon will face purchase restrictions in that one.
Fri, Nov. 14, 1:41 PM
- Pay-TV operators lost about 149K subscribers in Q3 to represent the industry's worst performance ever for the period, according to data compiled by Leichtman Research Group.
- The mark is slightly better than the 179K subs loss that Moffett Nathanson forecast.
- Based on seasonal trends, Leitchman forecasts a small increase in subscriber growth for Q4.
- Cable/satellite/telco Q3 sub scorecard: Comcast (NASDAQ:CMCSA) -81K, Time Warner (NYSE:TWX) -182K, Charter Communications (NASDAQ:CHTR) -24K, Cablevision (NYSE:CVC) -56K, Suddenlink +2.2K, Mediacom -19K, Cable ONE -14.1K, DirecTV (NASDAQ:DTV) -28K, Dish Network (NASDAQ:DISH) -12K, AT&T +216K, Verizon (NYSE:VZ) +114K, Others/Private -65K.
- Based on seasonal trends, Leitchman forecasts a small increase in subscriber growth for Q4.
- Related: Seismic changes coming for pay TV
Thu, Nov. 13, 8:46 PM
- Sony's (NYSE:SNE) new online TV package will price at $60 to $70 per month, estimates Re/code.
- It's a level that is twice what Dish Network (NASDAQ:DISH) plans to charge for a slimmer package, although one that includes ESPN.
- Programming on the Sony streaming service will feature shows from CBS, Discovery Communications, Fox, NBC, Scripps Networks, and Viacom.
- The pitch from the Japanese media giant is that cord-cutters will be drawn in by the captivating way of accessing the content through gaming consoles. A cutting-edge discovery and recommendations service for users is also highlighted by execs.
- Regulatory watch: Potential rule changes from the FCC could level the playing field for the new streamers as they work out their content deals.
- What to watch: A fragmented pay-TV landscape could benefit content producers (DISCA, CBS, FOXA, DIS, LGF, TWX, AMCX) in the short-term as competition heats up, while creating a pricing headache for cable/satellite/telco players (CMCSA, CVC, CHTR, DISH, T, DTV, VZ, TWC).
- The Netflix factor: Many media analysts consider Netflix (NASDAQ:NFLX) an add-on for consumers - instead of an either/or decision with online TV.
Fri, Oct. 31, 2:55 AM
- In response to Senator Patrick Leahy's letter last week urging top ISPs to not enter "paid prioritization" deals, Comcast (NASDAQ:CMCSA) and AT&T (NYSE:T) say they have no plans to create the Internet "fast lanes" which would hurt consumers' freedom to roam the Web.
- Verizon (NYSE:VZ) published its response to Leahy on Wednesday, also asserting that it has no plans for "fast lanes".
- The pledges come after the FCC proposed its "net neutrality" rules that prohibit ISPs from blocking content, but suggests allowing some "commercially reasonable" paid prioritization deals.
Wed, Oct. 29, 1:22 PM
- A bid by Aereo to be defined as a cable provider gained support from the FCC with a new proposal out this week which was described in a blog post written by Chairman Tom Wheeler.
- The agency supports "open access" for consumers to high-speed broadband delivery and the right of over-the-top firms to offer programming owned by pay-TV providers and broadcasters.
- In essence, the FCC thinks the bundled pay-TV model should be broken so that consumers will not be forced to pay for channels they never watch.
- What to watch: Though Aero isn't likely to be the ultimate pay-TV disrupter without the deep pockets to license content, the position of the FCC opens the door for other Internet video players to emerge and chips away at the bundled channels model.
- Related stocks: DISH, DTV, CMCSA, CHTR, CVC, TWC, VZ, T, NFLX.
VZ vs. ETF Alternatives
Verizon Communications Inc. is a provider of communications, information and entertainment products and services to consumers, businesses and governmental agencies. Its two segments are Wireless and Wireline.
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