Interactive Investor

ii view: Verizon customer gains impress Wall Street

Shares in this US telecom giant now sit at their highest in over a year and offer an attractive dividend yield. Buy, sell, or hold?

23rd January 2024 16:02

Keith Bowman from interactive investor

Fourth-quarter results to 31 December

  • Revenue down 0.3% to $35.1 billion (£27.7 billion)
  • A loss of $0.64 per share, down from a profit of $1.56  
  • Quarterly dividend unchanged from the previous quarter at 66.5 US cents per share (52.5p)
  • Unsecured debt of $128 billion (£101 billion), down $2.1 billion year-over-year

Chief Executive Hans Vestberg said:

“After delivering continuous improvement throughout 2023, we ended the year strong and continue to pursue the right balance of growth and profitability. 2023 was a year of change. We have the right assets and the best team in place and are well-positioned for growth in 2024."

ii round-up:

Telecom giant Verizon Communications Inc (NYSE:VZ) today reported its best year-over-year improvement in new consumer mobile postpaid phone users in four years. 

Fourth-quarter net new consumer wireless additions came in at 318,000, up from a loss of 51,000 in the prior third quarter, beating Wall Street hopes for a gain of 96,000. 

Shares in the Dow Jones company rose 5% in US trading having come into this latest news down by 4% in 2023. That’s similar to rival AT&T Inc (NYSE:T) and in contrast to a near 14% gain for the Dow index itself last year.

Exceptional charges taken - including those to write down the value of previous business acquisitions and for adjustments in relation to its staff pension fund - generated a fourth-quarter loss of $0.64 per share compared to a profit of $1.56 per share in Q4 2022. 

Sales at its consumer business improved 0.7% year-over-year to $27 billion, with gains in services revenue countering declines in equipment sales. Corporate related revenues eased 3.6% year-over-year to $7.6 billion, hindered by lower fixed line and equipment demand.      

Over the full year, free cash flow improved to $18.7 billion from $14.1 billion in 2022, with capital expenditure reduced to $18.8 billion from the prior year’s £23.1 billion. 

In December, Verizon declared a quarterly dividend of 66.5 cents per share, unchanged from the previous quarter. 

Accompanying management forecasts point towards expected adjusted earnings for the full-year 2024 of between $4.50 and $4.70, a potential outcome similar to 2023’s $4.71 and down from $5.18 per share in 2022. 

First-quarter results are scheduled for 22 April.    

ii view:

Formerly Bell Atlantic, Verizon today provides data, video and voice services and solutions across its fixed and mobile networks. Headquartered in New York, it operates across the two divisions of Consumer and Business, with the former accounting for just over three-quarters of total sales. Group goals include growing wireless service revenues, increasing free cash flow, and maintaining a healthy balance sheet.  

For investors, intense competition from the likes of T-Mobile US Inc (NASDAQ:TMUS) has previously seen Verizon lose consumer mobile customers. Elevated borrowing costs continue to pressure both consumer and corporate spending for other things such as new mobile phones. Costs for businesses generally remain elevated, while generating a return on its major 5G investments continues to occupy management's time.

More favourably, customer gains for its core consumer mobile business have been achieved in this latest quarter. Management initiatives to improve efficiency - including a previously announced $2-$3 billion cost savings program into 2025 - continue. The pandemic has arguably added to the need for fast data from more locations, while an estimated future price/earnings (PE) ratio below both the three- and 10-year averages suggests the shares could be good value.

In all, and while competition for mobile customers will remain intense, Verizon shares have delivered growth, while an historic and forecast dividend yield of over 6% should also keep income investors happy. 

Positives

  • Focus on costs 
  • Attractive dividend (not guaranteed)

Negatives:

  • Intense competition
  • Unsecured debt of $128 billion

The average rating of stock market analysts:

Strong hold

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