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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.
Verizon Communications: Soft Quarter, But Dividend Appeal Remains
- Verizon Communications posts a somewhat weaker third quarter earnings report.
- This results from intensifying competition in the wireless segment.
- Given this development and the leveraged balance sheet, I remain cautious, although dividend investors will probably find shelter in the shares.
Tue, Sep. 23, 6:13 PM
- Verizon (NYSE:VZ) has hired boutique i-bank TAP Advisors to find a buyer and work out a lease-back agreement for its 12K wireless towers by year's end, Bloomberg reports. It adds a deal could yield $6B, given how much AT&T received per tower in last year's $4.83B sale/leasing deal with Crown Castle (NYSE:CCI).
- Crown Castle, American Tower (NYSE:AMT), and SBA (NASDAQ:SBAC) have all been buying towers at a heady pace. However, the rising debt loads produced by the purchases could make one or more of the companies respond cautiously to Verizon's move.
- Verizon, for its part, is looking to de-leverage some after raising over $60B in debt to help pay for the Vodafone deal. The carrier had $104.2B in net debt at the end of Q2.
Thu, Jul. 31, 1:02 PM
- France's Iliad (OTC:ILIAF) is offering $15B in cash for a 56.6% stake in T-Mobile USA (TMUS +7.3%) at a price of $33/share. Iliad values the remaining 43.4% at $40.50/share. Sprint (S -5.3%) has been reported to be planning a ~$40/share deal.
- Iliad says it has obtained financing from unnamed banks, and would also do a capital raise to help pay for the deal. One issue: Iliad has a current market cap of just $16B, less than T-Mobile's $24.8B and Sprint's $30.6B. Sprint has reportedly lined up a $40B+ debt package to finance a T-Mobile deal.
- A source tells the WSJ Iliad, which has upended the French mobile market with its aggressive pricing, views a T-Mobile merger as a "one-time opportunity to enter the world's-largest telecoms market."
- Iliad also thinks (perhaps with good reason, given FCC/DOJ remarks) regulators will be more comfortable with its bid than Sprint's, since Iliad has no U.S. presence.
- AT&T (T -2%) and Verizon (VZ -2.3%) have joined Sprint in selling off, as investors mull the possibility of a deal that would leave the number of nationwide U.S. carriers at 4. Concerns about Iliad's pricing history might also be weighing on shares.
- Related tickers: OTCPK:SFTBF, OTCQX:DTEGY
- Earlier: Iliad reportedly bids for T-Mobile USA
Tue, Jul. 29, 12:14 PM
- "I’m skeptical it can be replicated," says Elevation LLC's Stephen Sweeney about Windstream's (WIN +12.9%) REIT spinoff plans. "It’s very unclear if other large cap companies can have their companies viewed by the IRS as real estate."
- UBS also has its doubts: It thinks AT&T (T +3.3%) and Verizon (VZ +1.8%) would have to open up their networks to rivals if they were spun off into REITs, something it doesn't think the carriers will be keen on doing.
- Oppenheimer's Tim Horan is more positive, albeit while cautioning Windstream's spinoff isn't a done deal. "If successful with this restructuring, and there are obviously high regulatory barriers, this will be a game changer for the valuation of non-REIT infrastructure stocks in our industry.”
- AT&T, Verizon, Windstream, Frontier (FTR +11.7%), and CenturyLink (CTL +4.2%) have pared their morning gains a bit amid volatile trading on very heavy volumes. AT&T has seen 66M shares trade vs. a daily average of 19.3M; Frontier has seen 89M trade vs. an average of 6.9M.
- Enthusiasm about Windstream's spinoff stems not only from the tax benefits provided to REITs - American Tower's tax expense has been halved since it converted into a REIT in 2012 - but also from the potential for spinoffs to spark new M&A activity.
- Windstream CFO Tony Thomas: "The REIT is going to be uniquely positioned to be in a great spot to help unlock value at other companies ... We have a good understanding of how the REIT opportunity could work in the telecom landscape."
- Earlier: Telcos soar following Windstream's REIT announcement
Wed, Jul. 9, 8:42 AM
- Select media stocks could see some volatility this week with the Allen & Co. Conference in Sun Valley, Idaho expected to get some M&A rumors kickstarted.
- This year's affair arrives with two mega-mergers (AT&T-DirecTV and Comcast-Time Warner Cable) looming large in the industry, and in a development which bodes well for content owners, will be attended by tech heavyweights such as Facebook's Sheryl Sandberg, Netflix's (NFLX) Reed Hastings, and Twitter's Dick Costolo.
- The eclectic mix also includes Warren Buffett and NBA commissioner Adam Silver who will chat up media execs with the NBA TV contract up for bid soon.
- Analysts expect the Allen conference to be high on stock-moving rumors, but light on binding deals.
- Rumored deals: A Discovery Communications (DISCA)-Scripps Networks Interactive (SNI) merger; Verizon (VZ) taking a run at Hulu (DIS, CMCSA, FOXA); 21st Century Fox (FOXA) offering a hefty premium for Time Warner (TWX).
- Related ETF: PBS
Fri, Jun. 20, 12:16 PM
- The NY Post reports Verizon (VZ -0.3%) is eying Dish's (DISH +3.3%) high-frequency spectrum, estimated by analysts to be worth as much as $17B. One source states early, informal talks have been held.
- Dish has been looking for a partner for its spectrum, which is particularly useful for handling 4G traffic in high-density urban areas. After Dish's Sprint bid was thwarted last year, Charlie Ergen has said he's open to a T-Mobile deal. But Sprint and T-Mobile are now eying a merger of their own (regulators permitting).
- Verizon has been dealing with a 4G capacity crunch in many big metro areas; the carrier is responding by rolling out 4G in the high-frequency AWS band. Buying Dish's spectrum would give Verizon more long-term headroom.
- Regulators probably wouldn't object to a deal, given Sprint and T-Mobile each have considerable high-frequency spectrum. But with Verizon having $110B in debt following the Vodafone deal, balance sheet concerns could get in the way.
- The AT&T/DirecTV deal fueled speculation Verizon will make a bid to fully acquire Dish. But Verizon CEO Lowell McAdam quickly shot down the idea.
Thu, May. 29, 4:15 AM
- Sprint (S) Chairman Masayoshi Son reasons that the rise in telecom and cable mergers should allow his company to buy rival T-Mobile (TMUS). Three big mergers have taken place in recent months with Verizon (VZ) acquiring Vodafone (VOD) for $130B, Comcast (CMCSA) buying Time Warner Cable (TWC) for $45B, and the AT&T (T) purchase of DirecTV (DTV) for $49B.
- "Access to the Internet is currently dominated by three giants with no sizable competitor," says Son.
- Although the company has not yet made a formal bid on T-Mobile, it looks to lay the framework for a future purchase.
- Antitrust authorities have previously frowned on such a deal, as it would cut the number of national competitors in the wireless industry to three from four.
Tue, May. 20, 9:55 AM
- "I know there are reports out there that we are talking to Dish (DISH -2.3%). I can tell you now, that is someone's fantasy ... I don't think owning a satellite company is something I'm interested in at this point," says Verizon (VZ +0.1%) CEO Lowell McAdam in response to reports his company has held talks with Dish.
- As it is, there was plenty of skepticism Verizon, which just took on more than $60B in debt to help pay for Vodafone's Verizon Wireless stake, would turn its sights on Dish in response to AT&T's (T -0.8%) deal to acquire DirecTV.
- McAdam states Verizon's current focus is on rolling out OTT (Web-based) programming. The company bought out Intel's would-be Web TV unit in January, and has since said it's in talks with content providers to offer a Web/mobile TV service.
- If/when Verizon's service launches, it'll likely face competition from Dish, which plans to launch a Web TV service aimed at cord-cutters by year's end. It might also compete against AT&T, which hopes to launch a Web TV offering within 12-18 months of the DirecTV deal's closing.
- For each company, signing up content providers terrified of upsetting traditional pay-TV clients (and thus putting affiliate fees at risk) remains a challenge. Dish, for its part, has managed to get Disney/ESPN on board.
Mon, May. 19, 2:35 PM
- Sources tell dealReporter Verizon (VZ +0.1%) has held talks with Dish (DISH -0.3%). Dish shares are near breakeven after trading lower much of the day in response to the AT&T/DirecTV deal.
- AT&T/DirecTV has fueled speculation Verizon could counter with an offer for Dish, which owns a large chunk of high-frequency spectrum that could be used to offer 4G services. But there has also been a fair amount of skepticism, particularly given Verizon just spent $130B to buy Vodafone's Verizon Wireless stake.
- Analyst Craig Moffett: "Dish Network has just been left standing ... That Verizon might be a buyer is more wishful thinking than it is analysis." Wells Fargo thinks Verizon might bid for Dish's spectrum, but not the whole company.
- The deal has also renewed speculation Dish will try to merge with T-Mobile (TMUS +2.1%), which could face tough regulatory opposition to a merger with Sprint.
- Reuters reported in December Dish is weighing an offer for the #4 U.S. carrier, and Charlie Ergen has said a deal is a possibility.
Mon, Apr. 28, 12:40 PM
- The FCC plans to add 128.5MHz. of spectrum to its screening procedures for vetting mergers and spectrum sales. Sprint (S -4.1%) owns 101MHz. of the spectrum, via its acquisition of Clearwire and its valuable 2.5GHz. band spectrum (good for urban areas).
- The rule change, due for a May 15 vote, relates to the FCC's scrutiny of deals that give a carrier more than 1/3 of all spectrum in a particular market. Sprint will exceed that threshold in most big markets once the change goes through.
- Though Sprint won't be forced to sell spectrum in those markets, it could have a much harder time adding to its spectrum position within them via M&A - say, through a merger with T-Mobile USA (TMUS -3.6%).
- Separately, the FCC plans to provide tougher scrutiny of deals that would lead to a single carrier having over 1/3 of all quality low-frequency (sub-1GHz., better for buildings and rural areas) spectrum in a market, and to limit how much a carrier with such a spectrum position can bid in 2015's anticipated low-frequency auctions.
- AT&T (T +1.3%) and Verizon (VZ +1.5%), which together control a giant share of low-frequency U.S. mobile spectrum, are the companies targeted by those proposals. Sprint, T-Mobile, and other rivals have been pressuring the FCC to limit how much spectrum AT&T and Verizon can buy in the 2015 auction.
Tue, Apr. 22, 9:14 AM
- Verizon's (VZ) Federal Network Systems (FNS) unit is being sold to Jacobs Engineering (JEC) for an undisclosed sum. The deal is expected to close this summer. (PR)
- FNS has over 750 employees, and provides IT, network design/maintenance, data security and systems integration services. It's focused on servicing intelligence, DoD, and federal civilian clients.
Mon, Apr. 7, 11:52 AM
- Verizon (VZ -0.3%) is paying $194M in cash to acquire spectrum licenses from Cincinnati Bell (CBB +1%), and is also assuming tower lease obligations. The deal, expected to close in 2H14, has a total value of $210M to CBB.
- CBB plans to wind down its wireless ops and "assist its wireless customers in transitioning their service arrangements to Verizon Wireless or other wireless providers."
- Verizon, perhaps looking to appease regulators, will assign the rights to CBB's spectrum to P-E firm Grain Management, and then lease a portion of it back.
- FierceWireless observes CBB owns a mixture of high-frequency and low-frequency Ohio spectrum. Regulators have been nervous about attempts by Verizon and AT&T to increase their already-massive low-frequency holdings.
Fri, Feb. 21, 11:20 AM
- Verizon (VZ -0.3%) has officially completed its $130B purchase of Vodafone's (VOD +0.5%) 45% stake in Verizon Wireless. As previously announced, Verizon is issuing 1.27B shares to Vodafone (current value of $61B), and paying for the rest of the deal in cash.
- Vodafone says it will return $23.9B of the cash to shareholders in addition to distributing the Verizon shares (previous), leading to a total return of $85B. All signs suggest the carrier will use a chunk of the remaining post-tax windfall to go acquisition-hunting.
- Verizon reiterates the deal will immediately be accretive to EPS by 10%. Over the long haul, it's expected to give Verizon more flexibility to integrate its wireline and mobile services, and to cut overhead by combining redundant divisions.
Wed, Feb. 19, 3:04 AM
- Vodafone (VOD) will divide up 1.27B Verizon Communications (VZ) shares to its investors as part of the distribution it's making following the $130B sale of its 45% stake in Verizon Wireless.
- Vodafone stockholders will receive 0.026 of a share in Verizon Communications for each Vodafone share they own.
- The U.K. carrier's shares are due to be consolidated on Monday at the rate of 6 new shares for 11 existing shares after the Verizon transaction closes on Friday.
- Based on closing stock prices and currency rates yesterday, for example, a Vodafone stockholder would receive £0.72 in Verizon shares and £0.30 in cash for each Vodafone share they hold. (PR)
Dec. 13, 2013, 4:25 PM
- Bloomberg reports Verizon (VZ -0.6%) is close to a deal to acquire Intel's (INTC -0.7%) TV unit, whose planned Web TV service never got off the ground. Intel was previously reported to be asking $500M for the unit.
- Verizon is once more said to be interested in using Intel's TV assets, which include set-top software and cloud DVR tech, to launch a Web TV service of its own in areas not covered by FiOS. The broadband/pay-TV providers whose networks Verizon will have to leverage to offer the service won't be thrilled to hear that.
- The report's timing coincides with that of a WSJ report stating Sprint is thinking of launching a bid for T-Mobile USA in 1H14. Verizon investors have taken the report in stride.
- Previous: Verizon, T-Mobile reportedly close to spectrum deal
Dec. 13, 2013, 2:29 PM
- Bloomberg reports Verizon (VZ -0.5%) is close to a deal to sell its 700MHz. A-block spectrum (good for rural areas) to T-Mobile USA (TMUS +0.6%) for a mixture of cash and urban spectrum, and could announce a sale next week.
- The much-rumored deal would help T-Mobile expand its rural coverage, and allow Verizon to improve its 4G coverage in cities where it's investing heavily to cope with surging 4G data traffic.
- The report comes shortly after the FCC delayed the auctioning of 600MHz. spectrum badly coveted by T-Mobile and Sprint to mid-2015.
Dec. 9, 2013, 9:16 AM
- Verizon (VZ) confirms it's acquiring CDN owner EdgeCast Networks. No price tag is given, but TechCrunch reported over the weekend Verizon is paying $350M+. The companies hope to close the deal in early 2014. (PR)
- Akamai (AKAM) investors aren't responding well to the news; shares -2.5% premarket. The deal could both strengthen an Akamai rival, and end Verizon's partnership with the CDN market leader.
- Verizon notes EdgeCast has 6K+ customers, and says the business complements that of TV Everywhere uploading/encoding service provider upLynk (acquired earlier this year).
- Separately, at a UBS conference talk (webcast), Verizon predicts its $130B purchase of Vodafone's Verizon Wireless stake (financed using both debt and equity) will boost EPS by 10%.
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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