Tag: T-Mobile US

Is Verizon (VZ) Stock a Buy Ahead of January 23 Earnings Release?

Posted on by The INO.com Team

With a market cap of $156.86 billion, Verizon Communications Inc. (VZ) is a leading provider of communications, information technology, and entertainment products and services to consumers, businesses, and governmental entities globally. The company is scheduled to report fourth-quarter 2023 earnings on January 23, 2024.

Analysts expect VZ’s revenue and EPS for the fourth quarter (ending December 2023) to decline 2% and 8.9% year-over-year to $34.55 billion and $1.08, respectively.

For the fiscal year 2023, Street expects the company’s revenue to decrease 2.5% year-over-year to $133.47 billion. The consensus EPS estimate of $4.69 for the current year indicates a decline of 9.4% year-over-year.

Shares of VZ have plunged nearly 1% over the past five days but gained more than 2% over the past six months. On the other hand, the benchmark S&P 500 has surged approximately 1.7% over the past five days and more than 9% over the past six months.

While VZ’s stock has underperformed the S&P 500 lately, the telecom company remains attractive for income-focused investors, given its reliable dividend.

Now, let’s review the key factors that could influence VZ’s performance in the near term:

Mixed Last Reported Financial Results

For the third quarter that ended on September 30, 2023, VZ reported revenue of $33.34 billion, slightly surpassing analysts’ estimate of $33.31 billion. However, this compared to the revenue of $34.24 billion in the same quarter of 2022. The decline was primarily due to reduced wireless equipment revenue and lower postpaid upgrade activity.

But the company’s wireless service revenue came in at $19.30 billion, up 2.9% year-over-year. This increase was mainly driven by targeted pricing actions implemented in recent quarters, the larger allocation of administrative and telco recovery fees from other revenue into wireless service revenue, and growth from fixed wireless offerings.

During the quarter, total broadband net additions were 434,000, representing the fourth straight quarter in which Verizon reported more than 400,000 broadband net additions. Total broadband net additions included 384,000 fixed wireless net additions, an increase of 42,000 fixed wireless net additions from the third quarter of 2022.

The telecom giant currently has nearly 10.3 million total broadband subscribers, including around 2.7 million subscribers on its fixed wireless service. The company reported 72,000 Fios Internet net additions, up from 61,000 Fios Internet net additions in the prior year’s quarter. 

Verizon’s third-quarter operating income declined 5.3% year-over-year to $7.47 billion. Its net income was $4.88 billion, a decrease of 2.8% from the prior year’s quarter. The company posted an adjusted EPS of $1.22, surpassing the consensus estimate of $1.18, but down 7.6% year-over-year.

The company’s adjusted EBITDA for the quarter grew 0.2% year-over-year to $12.20 billion. Its year-to-date cash flow from operations was $28.80 billion, up from $28.20 billion in 2022. Also, free cash flow year-to-date totaled $14.60 billion, an increase from $12.40 billion in the prior year.

VZ’s unsecured debt as of the end of the third quarter decreased by $4.90 billion sequentially to $126.40 billion. At the end of third-quarter 2023, the company’s ratio of unsecured debt to net income (LTM) was nearly 5.9 times, and its net unsecured debt to adjusted EBITDA was approximately 2.6 times.

Raised Free Cash Flow Guidance

“We continued to make steady progress in the third quarter with a clear focus on growing wireless service revenue, delivering healthy consolidated adjusted EBITDA and increasing free cash flow,” said Verizon Chairman and CEO Hans Vestberg. 

After reporting solid third-quarter results momentum, Verizon raised its free cash flow guidance for the full year 2023. The company expects free cash flow above $18 billion, an increase of $1 billion from the previously issued guidance. Cash flow from operations is expected in the range of $36.25 billion to $37.25 billion.

In addition, for 2023, the company expects total wireless service revenue growth of 2.5% to 4.5%. Its adjusted EBITDA and adjusted EPS are projected to be $47-$48.50 billion and $4.55-$4.85, respectively.

Attractive Dividend

On December 7, VZ declared a quarterly dividend of 66.50 cents ($0.665) per outstanding share. The dividend is payable on February 1, 2024, to Verizon shareholders of record at the close of business on January 10, 2024.

“We are committed to delivering value to our customers and shareholders as we execute on our focused network strategy,” said Hans Vestberg. “Our financial discipline and strong cash flow continue to put the company in a position for the Board to declare a quarterly dividend.”

Verizon has around 4.2 billion shares of common stock outstanding. The company made more than $8.2 billion in cash dividend payments in the last three quarters.

VZ pays an annual dividend of $2.66, which translates to a yield of 7.13% at the current share price. Its four-year average dividend yield is 5.42%. The company has raised its dividend for 17 consecutive years, the longest current streak of dividend increases in the U.S. telecom industry.

Progress in 5G Network Buildout

On December 21, Verizon announced the expansion of its reliable 4G and high-speed 5G service throughout Florida, Kennesaw, GA, and Aiken County, SC, among other areas.

This service is part of the company’s massive multi-year network transformation, which has not only brought 5G service to more than 230 million people and 5G home internet service to nearly 40 million households but has also added more capabilities, upgraded the technology in the network, paving the way for personalized customer experiences and offering a platform for enterprises to boost innovation.

According to a report by Grand View Research, the global 5G services market is projected to reach $2.21 trillion by 2030, expanding at a CAGR of 59.4% during the forecast period (2023-2030). Meanwhile, North America 5G services market is expected to grow at a CAGR of 51.6% from 2023 to 2030.

The growing demand for high-speed data connectivity worldwide, rising investments in 5G infrastructure, and rapid integration of advanced technologies like IoT and AI are estimated to propel the adoption of 5G services. Verizon is well-positioned to capitalize on the significant 5G adoption and fixed wireless broadband network momentum.

Fierce Competition

While Verizon continues to accelerate the availability of its 5G ultra-wideband network across the country, the company faces heightened competition from wireless industry players, including AT&T, Inc. (T), T-Mobile US, Inc. (TMUS), Vodafone Group Plc (VOD), and SK Telecom Co., Ltd. (SKM).

Mixed Historical Growth

VZ’s revenue grew at a CAGR of 1.5% over the past three years. But its EBIT decreased at a CAGR of 0.3% over the same period. The company’s net income and EPS improved at CAGRs of 4.5% and 4% over the same time frame, respectively.

Further, the company’s levered free cash flow increased at a CAGR of 20.1% over the same period, and its total assets improved at a CAGR of 9%.

Robust Profitability

VZ’s trailing-12-month gross profit margin and EBIT margin of 58.69% and 22.87% are 20% and 183.1% higher than the industry averages of 48.90% and 8.08%, respectively. Likewise, the stock’s trailing-12-month net income margin of 15.58% is significantly higher than the industry average of 3.21%.

Additionally, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.56%, 7.04%, and 5.43% are considerably higher than the respective industry averages of 3.41%, 3.55%, and 1.24%. Its trailing-12-month levered FCF margin of 13.31% is 73.9% higher than the industry average of 7.65%.

Mixed Valuation

In terms of forward non-GAAP P/E, VZ is currently trading at 7.95x, 49.1% lower than the industry average of 15.62x. The stock’s forward EV/EBITDA of 6.96x is 20.3% lower than the industry average of 8.73x. Also, its forward Price/Book and Price/Cash Flow of 1.57x and 4.23x compared to the industry averages of 1.99x and 10.03x, respectively.

However, the stock’s forward non-GAAP PEG multiple of 32.47 is significantly higher than the industry average of 1.54. Its forward EV/Sales of 2.49x is 34.7% higher than the industry average of 1.85x.

Analyst Price Targets

On December 19, Oppenheimer analyst Timothy Horan maintained a Buy rating on VZ and set a price target of $43 on the stock. In addition, Verizon received a Buy rating from Citi’s Michael Rollins in a report issued on December 13. However, Well Fargo maintained a Hold rating on VZ’s stock.

Bottom Line

Verizon’s disciplined approach to driving strong cash flow, operating the business, and serving its customers allowed it to raise its dividend for the 17th consecutive year.

However, analysts appear bearish about the telecom company’s near-term prospects. Verizon’s revenue and EPS growth will likely face challenges, and this slowdown is primarily attributed to fierce competition from leading industry players such as AT&T and T-Mobile, which are consistently undergoing significant changes in their operations.

Given slowing revenue and EPS growth, heightened competition, and mixed valuation, it seems prudent to wait for a better entry point in this stock.

6 Stocks to Invest in if There’s Another Rate Hike

Posted on by The INO.com Team

Today, on August 31, the initial jobless claims for the week ending August 26 came in at 228,000, below market expectations of 235,000, thereby registering its lowest reading in four weeks.

This has followed further signs of economic slowdown in the form of JOLTS, which showed an unexpected drop in job openings to below 9 million for the first time since March 2021, the latest consumer confidence index, which came in at 106.1, lower than the previous Dow Jones estimate of 116 which was lower-than-expected addition of 177,000 jobs in August according to private payroll data from ADP, and a downward revision in the GDP growth rate for the second quarter.

However, such disappointing updates have been welcomed by market participants spooked by Fed chair Jerome Powell’s message at Jackson Hole in Wyoming on Friday, August 25.

While it was not as brief as last year’s, it was still equally unambiguous. 2% still remains the non-negotiable target for the inflation rate, and the Central Bank is prepared to raise policy rates further if required and hold them higher for longer until it is confident of sustained price stability.

While the 12-month PCE has since declined to 3% percent as of July from its peak of 7% in June 2022 due to a significant unwinding of the demand-supply imbalance, however, the core PCE, which excludes volatile food and energy prices and includes inflation for goods, housing services, and all other services, came in at 4.3% in July, indicating that there is significantly more ground left to cover through monetary policy tightening.

In such a scenario, despite increased optimism, businesses are expected to remain weighed down by high borrowing costs, and economic activity is expected to remain stifled due to relatively scarce credit.

Moreover, with every increase in benchmark interest rates, a selloff of long-duration fixed-income instruments, such as the 10-year treasury notes, gets triggered, which causes a slump in their market value and a consequent increase in their yields. This also increases the benchmark 30-year mortgage rates, thereby depressing demand and deepening the crisis in which real estate has lately been finding itself.

An increase in borrowing costs would not just raise the cost of servicing the $32.7 trillion national debt; significant markdowns and prices of legacy bonds could crush the loan portfolios of banks that could share the same fate as the Silicon Valley Bank and the First Republic Bank. In this context, S&P's move to downgrade multiple U.S. banks citing ‘tough’ operating conditions hardly comes as a surprise.

Speaking of banks, the Bank of Japan’s policy tweak loosened its yield curve control, sparking widespread shock in the markets. To compound the miseries further, after placing the country on negative watch amid the debt-ceiling standoff at Capitol Hill back in May, Fitch Ratings recently downgraded U.S. long-term rating to AA+ from AAA, citing the erosion of confidence in fiscal management.

While broad expectations are pricing in a rate hike in November after a pause in September’s FOMC meeting, being diligent investors confident enough to increase their stakes in fundamentally strong businesses could be a time-tested method to navigate potential turbulence ahead.
Here are a few which could be worthy of consideration:

Amazon.com, Inc. (AMZN)

The global retail giant provides its consumers a wide range of products and services through its online platform and offline supply chains. In addition to reselling merchandise and content offered by third-party resellers, the company also manufactures electronic devices to distribute its service. It operates through three segments: North America, International, and Amazon Web Services (AWS).

The AWS segment consists of global sales of computing, storage, databases, and other services for start-ups, enterprises, government agencies, and academic institutions. Recently, at the AWS Summit in New York, San Francisco-based cloud communication and customer engagement platform Twilio Inc. (TWLO)announced its strategic partnership with the company.

The renewal of vows and strengthening of ties, which seeks to enhance the company’s predictive AI proficiency, has closely followed a vote of confidence from the tech giant in which AMZN announced that it has acquired 1% stake in TWLO earlier in the week with its ownership of 1.77 million shares worth more than $108 million.

During the fiscal 2023 second quarter that ended June 30, AMZN’s net sales increased 11% to $134.4 billion, while its operating income more than doubled to $7.7 billion. Consequently, the behemoth’s net income came in at $6.7 billion, or $0.65 per share, compared to a net loss of $2 billion, or $0.20 per share, during the previous quarter.

Exxon Mobil Corporation (XOM)

XOM is engaged in the energy business through exploration for and production of crude oil and natural gas and the manufacture, trade, transport, and sale of crude oil, natural gas, petroleum products, petrochemicals, and a range of specialty products. The company’s segments include Upstream; Downstream; and Chemicals.

Over the past three years, XOM’s revenue has grown at a 19.8% CAGR. Over the same time horizon, the company’s EBITDA and net income have grown at 50.8% and 93.2% CAGRs, respectively.

On July 13, XOM announced the acquisition of Denbury Inc. (DEN), an experienced developer of carbon capture, utilization, and storage (CCS) solutions and enhanced oil recovery. The acquisition is an all-stock transaction valued at $4.9 billion, or $89.45 per share, based on XOM’s closing price on July 12, 2023.

During the fiscal 2023 second quarter that ended June 30, XOM’s total revenue and other income came in at $82.91 billion. During the same period, the net income attributable to it came in at $7.88 billion, or $1.94 per share.

T-Mobile US, Inc. (TMUS)

Through its flagship brands, T-Mobile and Metro by T-Mobile, TMUS provides mobile communication services in the United States, Puerto Rico, and the United States Virgin Islands.

Over the past three years, TMUS’ revenue has grown at almost 15% CAGR. During the same time horizon, its EBITDA and net income have grown at 19.4% and 31.8% CAGRs, respectively.

On the 5G front, on August 15, TMUS expanded its coverage in Pennsylvania, while on August 17, the company expanded its REVVL lineup with its first-ever tablet and new 5G smartphones.

For the fiscal 2023 second quarter, TMUS’ and postpaid service revenues registered industry-leading growth rates of 2.8% and 5.5%, to come in at $15.7 billion and $12.1 billion, respectively. The company’s adjusted EBITDA increased by 5.7% year-over-year to $7.20 billion during the same period.
Consequently, its net income for the quarter came in at $2.22 billion, or $1.86 per share. With the expectation of adding a net 5.6 to 5.9 million customers compared to the earlier estimate of 5.3 million to 5.7 million, TMUS has revised its core adjusted EBITDA guidance upwards to a range between $28,900 and $29,200.

The Progressive Corporation (PGR)

As an insurance holding company, PGR operates throughout the U.S. through three segments: Personal Lines; Commercial Lines; and Property. The company’s non-insurance subsidiaries generally support its insurance and investment operations.

Over the past three years, PGR’s revenue and total assets have grown at 11.3% and 11.8% CAGRs, respectively. For the fiscal 2023 second quarter that ended June 30, PGR’s total revenue increased by 33.3% year-over-year to $15.35 billion. During the same period, the net income available to common shareholders came in at $335.9 million, or $0.57 per share, compared to the net loss of $549.6 million, or $0.94 per share.

Albemarle Corporation (ALB)

As a global developer, manufacturer, and marketer of specialty chemicals, ALB operates through three segments: Energy Storage, Specialties, and Ketjen.
Given the ALB’s burgeoning lithium mining operations in Latin America coinciding with the exponential increase in demand and price of white gold driven by the imperative of energy transition, the company’s revenue has ballooned at 42% CAGR over the past three years. During the same time horizon, its EBITDA and net income have increased at 61.5% and 107.5% CAGRs, respectively.

On July 19, ALB announced that it had agreed to amend the transaction terms signed earlier this year with Mineral Resources Limited (MALRF). Pending regulatory approvals, under the new agreement, ALB will take 100% ownership of the Kemerton lithium hydroxide processing facility in Australia that is currently jointly owned with MALRF through the MARBL joint venture. ALB will also retain full ownership of its Qinzhou and Meishan lithium processing facilities in China.

The amendment is expected to simplify commercial arrangements further and provide greater strategic opportunities for each company based on its global operations and the evolving lithium market.

On July 18, ALB announced its quarterly dividend of $0.40 per share, payable October 2, 2023, to shareholders of record at the close of business as of September 15, 2023. ALB currently pays $1.60 annually as dividends and has been able to increase its payouts for the past 28 years.

For the fiscal 2023 second quarter that ended June 30, ALB’s net sales increased by 60.2% year-over-year to $2.37 billion, while its adjusted EBITDA increased by 69.2% year-over-year to $1.03 billion. Consequently, the net income attributable to ALB increased by 59.8% year-over-year to $650 million, while its adjusted EPS increased by 112.5% year-over-year to $7.33.

Given the stellar performance, ALB raised its revenue and EPS guidance for the fiscal year to $10.4 - $11.5 billion and $25.00 - $29.50, in line with the current analyst estimates.

Coterra Energy Inc. (CTRA)

As an independent oil and gas company, CTRA is involved in developing, exploring, and producing oil, natural gas, and natural gas liquids (NGLs). The company’s operations are primarily concentrated in three areas: the Permian Basin in west Texas and southern New Mexico; the Marcellus Shale in northeast Pennsylvania; and the Anadarko Basin in the Mid-Continent region in Oklahoma.

Over the past three years, CTRA’s revenue has grown at a 70.9% CAGR. Over the same time horizon, the company’s EBITDA and net income have grown at 88.9% and 113.2% CAGRs, respectively.

During the fiscal 2023 second quarter that ended June 30, CTRA’s operating revenue came in at $1.19 billion, while its adjusted net income came in at $291 million, or $0.39 per share. Given the outstanding operational execution, the company has increased its 2023 BOE and natural gas production guidance by 2% and oil guidance by 3% at the mid-point.