ii view: Verizon caters for Covid communications

Closed stores have hit sales, but consumers need the internet & this giant offers an attractive income.  

Second-quarter results to 30 June

• Revenue down 5.1% to $30.4 billion (£23.7 billion)
• Adjusted earnings per share (EPS) down 4% to $1.18
• Previously announced quarterly dividend of 61.5 US cents per share

Chief Executive Hans Vestberg said:

“Through extraordinary circumstances, Verizon delivered a strong operational performance in the second quarter. We remain focused on our strategic direction as a technology leader, quickly adapting to the new environment and providing our customers with reliable and vital connections and technology services, while working to keep our employees safe and accelerating our 5G network deployment.”

ii round-up:

US telecoms giant Verizon Communications (NYSE:VZ) reported second-quarter earnings which exceeded analyst forecasts, buoyed by demand for internet services as consumers continued to work from home under the Covid-19 pandemic. 

Earnings per share excluding special items of $1.18, although down 4% year-over-year, beat analyst forecasts nearer to $1.15. 

Verizon shares rose by over 1% in US market trading following the results having fallen by under 10% year-to-date. Rival AT&T (NYSE:T), which was subject to speculative M&A talk in 2019, has seen its shares fall by over 20% during the year. 

Verizon net phone additions of 173,000 easily beat expectations below 100,000 as consumers signed up for cheaper monthly paid services in order to utilise the internet under US population lockdowns. 

The gain came despite Covid restrictions keeping many of its store outlets closed, crimping overall group revenues and device sales. At the end of the quarter, around 60% of its company-operated retail stores were open.

As is customary in the US, Verizon had already announced details of its dividend payment. It will pay 61.5 cents per share, a figure unchanged on the last three quarters although up 2% on the second quarter of 2019.

Verizon previously agreed to buy Zoom Video Communications (NASDAQ:ZM) rival BlueJeans Network for less than $500 million.  

ii view:

Competition across the telecoms sector and with its arch-rival AT&T remains intense. The group’s previous move to offer a free one-year subscription to Disney's (NYSE:DIS) streaming service looks to compete with AT&T’s tie-up with HBO. 

More broadly, Verizon is focused on plans to build the group’s 5G capabilities and pay down debt. Covid-19 now adds operational challenge to its intensive competitive battle.  

For investors, network operators have arguably become commoditised. Price is now a key consumer consideration. Tie-ups with content providers add a further cost and layer of consideration. The closure of stores under Covid also removes consumers ability to touch and feel potential new phones and devices. 

But the historic and forward dividend yield of around 4% (not guaranteed) is highly attractive in a low interest rate Covid constrained world. Social distancing also adds to the importance of technology to stay in touch and hopefully keep working. For now, defensive income qualities look to outweigh broader pandemic unknowns.  

Positives

• Verizon is rolling out its 5G service 
• Pursuing a target of $10 billion in cumulative cash savings by 2021

Negatives:

• Sector competition is intense
• A second virus spike could see stores closing again

The average rating of stock market analysts:

Strong hold