Interactive Investor

ii view: Verizon shares crash to lowest since 2017

22nd July 2022 15:46

Keith Bowman from interactive investor

Shares for this major telecom provider are now down over 10% year-to-date and offer a dividend yield of over 5%. Buy, sell, or hold? 

Second-quarter results to 30 June

  • Revenue flat at $33.8 billion (£28 billion)
  • Adjusted Earnings Per Share (EPS) down 6% to $1.31 (108p) 
  • Quarterly dividend of $0.64 per share (53p) unchanged from the previous quarter
  • Unsecured debt down $4.8 billion from the previous quarter to $132.5 billion (£110 billion)

Guidance:

  • Expects wireless service revenue growth of 8.5% to 9.5%, down from growth of 9% to 10%
  • Expects adjusted full year EPS of between $5.10 to $5.25, down from $5.40 to $5.55

Chief executive Hans Vestberg said:

“As the market leader, in a very competitive industry, we are determined to improve our operational and financial performance for the second half of the year. With our network-as-a-service foundation, our new consumer mobility plans, and recent pricing actions, we are being deliberate in our decisions to improve our profitable growth opportunities today and into the future."

ii round-up:

US telecoms giant Verizon Communications (NYSE:VZ) today lowered its full-year earnings guidance as consumer caution and rising costs appeared to bite. 

Full-year adjusted earnings per share (EPS) is now expected to come in at between $5.10 and $5.25, down from its previous estimate of between $5.40 and $5.55. New net phone subscribers of 12,000 fell short of Wall Street forecasts of more than 150,000, with Verizon having only recently upped its pricing plans to help counter rising costs. The news followed disappointing results from arch-rival AT&T (NYSE:T) yesterday.

Verizon shares fell by around 5% in US trading having fallen by 8% year-to-date. AT&T fell by almost 8% following results yesterday to leave them down by almost a quarter during 2022. The S&P 500 is down 16% year-to-date. 

Verizon’s adjusted EPS for the quarter to the end of June came in at $1.31, down from $1.39 a year ago and below analyst estimates of $1.35 per share. Overall revenue year-over year was flat at $33.8 billion. 

Total consumer revenues rose 9% to $25.6 billion, helped by its prior takeover of network provider TracFone. Business related revenues fell almost 2% to $7.6 billion.

The New York headquartered telecoms giant now expects wireless service revenue growth of between 8.5% and 9.5%. That’s down from a previous estimate of 9-10%. 

Third-quarter results are scheduled for 21 October. 

ii view:

Formerly Bell Atlantic, the company began trading under the Verizon name in July 2000. Today it delivers communications and information to both consumers and businesses across the US. Current goals include expanding its 5G leadership in the US and maintaining a healthy balance sheet, but there's intense competition in the US telecoms sector. Verizon’s previous move to offer a free one-year subscription to Disney’s streaming service also competes with AT&T’s tie-up with HBO. 

For investors, a downgrading of profit estimates for the year ahead offers caution. Costs for businesses generally are rising, a cost-of-living crisis for consumers could see spending on communications cut or reduced, while generating a return on its major 5G investments continues to occupy management.

More favourably, the use of data services is here to stay, with Verizon investing heavily in its network offerings. The pandemic has arguably added to the need for fast data from more locations, while some diversity in both its product offering and its customer base is also worth remembering. In all, and while the outlook has become more uncertain, a historic and estimated future dividend yield of over 5% should continue to appeal to income investors.

Positives

  • Expanding its 5G service 
  • Attractive dividend (not guaranteed)

Negatives:

  • Intense competition
  • Unsecured debt of $132.5 billion

The average rating of stock market analysts:

Strong hold

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