Key takeaways
View moreVerizon appears moderately undervalued primarily due to its significantly low EV/EBITDA and EV/Sales ratios compared to industry averages, coupled with strong profitability metrics (ROA, ROE) that exceed industry benchmarks. The company's growth prospects in AI and 5G, along with its strong market position, are not fully reflected in the current valuation, despite concerns about liquidity and intense competition.
- Verizon exhibits strong profitability, with ROA at 4.58%, ROE at 18.27%, and ROC at 11.42%, all exceeding industry averages.
- Liquidity remains a concern, as the current ratio is 0.58 and the quick ratio is 0.55, both significantly below industry averages.
- Revenue is growing, but the growth rate is decelerating, indicating a potential challenge in sustaining top-line performance.
- The company's focus on AI Connect presents a significant growth opportunity, leveraging existing assets to capitalize on the growing AI infrastructure market.
- Verizon's debt-to-equity ratio of 169.65% is below the industry average, suggesting prudent financial leverage management.
- Capital expenditure is high at $5.20 billion in Q4 2024, reflecting ongoing investments in infrastructure, crucial for maintaining competitiveness.
- Verizon has underperformed its peers, AT&T and Deutsche Telekom, in terms of historical performance and annualized returns.
- Management expects wireless service revenue to grow between 2% and 2.8% in 2025, with adjusted EBITDA expected to grow 2% to 3.5%.
- The company faces intense competition and cybersecurity threats, requiring continuous innovation and robust security measures.
- The earnings call highlighted Verizon's commitment to restoring service in wildfire-affected areas, showcasing its role in supporting communities during crises.
Evaluation summary
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Company Overview:
- Verizon Communications, Inc. (VZ) is a leading provider of communications, technology, information, and entertainment products and services. The company operates through two main segments: Verizon Consumer Group (Consumer), which provides consumer-focused wireless and wireline communications services, and Verizon Business Group (Business), which offers wireless and wireline communications services and products, including FWA broadband, data, video, and corporate networking solutions.
- Key products and services include wireless services, wireless equipment, residential fixed connectivity solutions, enterprise and public sector connectivity and managed services, and wholesale communications services. The company's SEC filings highlight a focus on expanding its fiber broadband footprint and 5G wireless network.
- The benchmarks used for comparative analysis include The Communication Services Select Sector SPDR Fund (XLC). The peers used for comparative analysis include AT&T, Inc. (T) and Deutsche Telekom AG (DTE).
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Financial Performance:
- Verizon's financial performance shows a trend of increasing revenue. Sales/revenue increased from $32.98 billion in Q1 2024 to $35.68 billion in Q4 2024. Net income also increased from $4.60 billion in Q1 2024 to $5.01 billion in Q4 2024.
- Gross profit margin ranged from 43.89% to 48.30% over the four quarters, while net profit margin ranged from 9.92% to 14.03%. EBITDA margin ranged from 33.43% to 37.51%.
- Return on Average Assets (ROA) ranged from 2.56% to 4.58%, Return on Average Total Equity (ROE) ranged from 10.10% to 18.27%, and Return on Average Total Capital ranged from 10.70% to 11.42%. These profitability ratios are above the industry average, as ROA is 4.58% vs. an industry average of 2.83%, ROE is 18.27% vs. an industry average of 11.92%, and ROC is 11.42% vs. an industry average of 3.57%.
- The earnings call highlighted that Verizon delivered on its financial guidance for 2024, with wireless service revenue and adjusted EBITDA growth exceeding the midpoint of guided ranges.
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Operational Efficiency:
- Total current assets increased from $35.18 billion in Q1 2024 to $37.59 billion in Q4 2024, while total current liabilities increased from $53.63 billion to $64.77 billion over the same period.
- Working capital remained negative, ranging from -$18.45 billion to -$27.18 billion, indicating potential short-term financial challenges.
- Net operating cash flow increased from $7.08 billion in Q1 2024 to $10.43 billion in Q4 2024. Total capital expenditure also increased from $4.83 billion to $5.20 billion.
- Free cash flow margin ranged from 7% to 17%, which is below the industry average of 23%.
- Total capital expenditure was $5.20 billion in Q4 2024, while depreciation, depletion, and amortization were $4.51 billion.
- Cash dividends paid were approximately $2.8 billion per quarter. The earnings call mentioned that the dividend was raised for the 18th consecutive year.
- The current ratio ranged from 0.58 to 0.66, which is below the industry average of 1.68. The quick ratio ranged from 0.55 to 0.62, also below the industry average of 1.56.
- The debt-to-equity ratio ranged from 169.65% to 186.18%, which is below the industry average of 210.01%. Total debt increased from $175.63 billion in Q1 2024 to $168.36 billion in Q4 2024.
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Growth Opportunities:
- Verizon is focusing on scaling private networks and launching customer-first offerings. The company is investing in C-band deployment, Fios expansion, and launching a fixed wireless MDU solution.
- The earnings call highlighted Verizon's AI Connect strategy, which aims to leverage existing connectivity and edge compute assets to capitalize on the growing AI infrastructure market.
- Verizon acquired Frontier Communications Parent, Inc. to enhance its fiber broadband footprint and drive future growth, as noted in the SEC filings.
- The company is expanding its broadband subscriber base, led by fixed wireless access. Nearly 1.6 million broadband subscribers were added in 2024, growing market share.
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Recent Developments and Market Sentiment:
- The earnings call on January 24, 2025, revealed that Verizon is actively working to restore service in wildfire-affected areas, supporting first responders, and coordinating with public safety agencies.
- The market sentiment appears positive, with analysts focusing on the AI Connect opportunity and its potential revenue recognition. There is also interest in the upgrade environment, EBITDA growth drivers, and the impact of fixed wireless access growth.
- The company's strategic objectives align with these developments, as Verizon is focused on wireless service revenue growth, adjusted EBITDA expansion, and strong free cash flow.
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Risks and Threats:
- The SEC filings highlight intense competition in the markets Verizon operates in, including the inability to respond effectively to competitive factors.
- Failure to take advantage of or respond to technological developments and changes in consumer demand is a significant risk.
- Performance issues or delays in 5G network deployment could result in significant costs or reduced benefits.
- Adverse economic conditions, including inflation and changing interest rates, could impact affordability and demand for products/services.
- Cybersecurity threats and attacks could disrupt operations and networks.
- The company faces approximately 30 federal patent infringement lawsuits, primarily from non-practicing entities seeking monetary damages.
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Valuation Analysis:
- The Enterprise Value to EBITDA ratio ranged from 6.38 to 7.06, which is significantly below the industry average of 15.74. The Enterprise Value to Sales ratio ranged from 2.48 to 2.68, also below the industry average of 16.15.
- Potential catalysts include the successful execution of the AI Connect strategy and continued growth in the broadband subscriber base.
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Price Performance:
- The price history shows volatility in Verizon's stock price. From February 20, 2025, to April 17, 2025, the stock price ranged from approximately $41.82 to $45.76.
- Verizon has shown mixed performance compared to The Communication Services Select Sector SPDR Fund (XLC). Over the past year, VZ has outperformed XLC, with returns of 17.14% versus 13.54%, respectively. However, over longer periods (2 and 3 years), VZ has significantly underperformed XLC.
- Verizon has consistently underperformed both AT&T (T) and Deutsche Telekom (DTE) across various timeframes.
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Future Outlook:
- For 2025, Verizon expects total wireless service revenue to grow between 2% and 2.8%. Consolidated adjusted EBITDA is expected to grow 2% to 3.5%. Full-year adjusted earnings per share growth is expected to be in a range of flat to up 3%.
- Capital spending for the full year is expected to be between $17.5 billion and $18.5 billion. Free cash flow is projected to be in the range of $17.5 billion to $18.5 billion.
- The earnings call indicated that management sees a growing demand for AI applications and infrastructure, with significant investment expected in the AI ecosystem.
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Summary:
- Verizon demonstrates strong profitability metrics, exceeding industry averages in ROA, ROE, and ROC. However, liquidity ratios are below industry benchmarks, signaling potential short-term financial challenges.
- The company's debt-to-equity and debt/EBITDA ratios are favorable compared to industry averages, suggesting prudent financial leverage management.
- Revenue growth is evident, but decelerating growth rates warrant attention to sustain future top-line performance.
- High capital expenditure reflects ongoing investments in infrastructure, crucial for maintaining competitiveness in the telecommunications sector.
- SWOT Analysis:
- Strengths: Strong profitability, focus on AI Connect, growing broadband subscriber base.
- Weaknesses: Low liquidity ratios, negative working capital, decelerating revenue growth.
- Opportunities: AI infrastructure market, expansion of fiber broadband footprint, scaling private networks.
- Threats: Intense competition, technological changes, cybersecurity threats.
- Overall, Verizon's financial health is stable, but the company needs to address its liquidity issues and sustain its revenue growth. The focus on AI and broadband expansion could be key growth drivers. Investors should monitor the company's progress in these areas, as well as its ability to manage its debt levels and navigate the competitive landscape.
Price history
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Fundamentals
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Insights
- Verizon demonstrates strong profitability metrics, exceeding industry averages in ROA, ROE, and ROC, indicating efficient asset and equity utilization.
- Despite robust profitability, liquidity ratios (current and quick ratios) are below industry benchmarks, signaling potential short-term financial challenges.
- The company's debt-to-equity and debt/EBITDA ratios are favorable compared to industry averages, suggesting prudent financial leverage management.
- Revenue growth is evident, but decelerating growth rates warrant attention to sustain future top-line performance.
- High capital expenditure reflects ongoing investments in infrastructure, crucial for maintaining competitiveness in the telecommunications sector.
Analysis
- Revenue
- Sales/revenue is trending upwards, indicating growth in the company's top line.
- The growth rate is decelerating, suggesting that the company may face challenges in sustaining its revenue growth.
- Sales/revenue is above the industry average, indicating a strong market position.
- Profitability
- Profitability ratios (ROA, ROE, ROC) are above the industry average, indicating efficient profit generation.
- Gross profit margin is below the industry average, suggesting higher costs of goods sold.
- Net profit margin and EBITDA margin are above the industry average, indicating efficient cost management.
- Liquidity
- The current ratio and quick ratio are below the industry average, indicating potential liquidity issues.
- Working capital is negative, which could be a concern for short-term financial health.
- Solvency
- The debt-to-equity ratio and debt/EBITDA are below the industry average, indicating lower financial leverage.
- Long-term debt is decreasing, suggesting that the company is reducing its debt burden.
- Operational Efficiency
- The company is efficiently utilizing its assets to generate revenue, as indicated by the high profitability ratios.
- The company is effectively managing its costs, as indicated by the high net profit margin and EBITDA margin.
- Cash Flow Analysis - Net operating cash flow is trending upwards, driven by increases in net income and depreciation, depletion & amortization. - Total capital expenditure is high, reflecting significant investments in infrastructure. - Free cash flow margin is below the industry average, indicating that the company may have limited cash available for other uses.
- Risk Factors
- Potential liquidity issues due to low current ratio and negative working capital.
- High debt levels, although decreasing, may limit the company's financial flexibility.
- Intense competition in the telecommunications industry, driven by rapid technological changes and evolving consumer preferences.
- Future Outlook
- The company is expected to continue to grow its revenue and profitability, driven by strategic initiatives and market conditions.
- The company's financial flexibility may be impacted by its high debt levels.
- Key metrics to monitor include revenue growth, profitability ratios, liquidity ratios, and debt levels.
- Profitability
Financial statements
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Public filings
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- Verizon is a leading provider of communications, technology, and streaming services, with a strong focus on wireless and broadband connectivity for both consumers and businesses.
- The company faces intense competition in its markets, driven by rapid technological changes, new entrants, and evolving consumer preferences, requiring significant ongoing investments in network infrastructure and new capabilities.
- Verizon has been actively expanding its fiber broadband footprint and 5G wireless network to meet growing demand for high-speed, reliable connectivity, though deployment challenges and costs remain a risk.
- The company's financial performance has been mixed, with revenue growth in the Consumer segment offset by declines in the Business segment, and rising costs in areas like labor, equipment, and network expansion.
- Verizon maintains a high debt load and must carefully manage its capital structure and financing needs to support its strategic initiatives and withstand potential economic headwinds.
- Key risks include cybersecurity threats, supply chain disruptions, regulatory changes, and the potential for further industry consolidation and competitive pressures.
Core Business and Operations:
- Verizon Communications Inc. is one of the world's leading providers of communications, technology, information and streaming products and services to consumers, businesses and government entities
- The company operates two main business segments:
- Verizon Consumer Group (Consumer): Provides consumer-focused wireless and wireline communications services and products, including fixed wireless access (FWA) broadband
- Verizon Business Group (Business): Provides wireless and wireline communications services and products, including FWA broadband, data, video, advanced communication services, corporate networking solutions, security and managed network services
- Key products and services include wireless services, wireless equipment, residential fixed connectivity solutions, enterprise and public sector connectivity and managed services, and wholesale communications services
- Major customers include retail consumers, businesses, government entities, and other telecommunications carriers
- Key competitors include other national wireless providers, cable companies, technology companies, and other communications/networking service providers
Industry and Market Trends:
- The telecommunications industry is highly competitive, with rapid technological changes, new entrants, and evolving consumer preferences
- Demand for wireless services, broadband connectivity, and advanced enterprise solutions continues to grow, driven by increasing mobile data usage, the proliferation of connected devices, and the need for reliable, high-speed networks
- Regulatory environment includes oversight by the FCC and state/local authorities, with ongoing developments around broadband regulation, spectrum allocation, and privacy/data security requirements
- Industry faces challenges such as network deployment costs, managing technology transitions, and responding to competitive pricing pressures and promotional strategies
Recent Events:
- Acquired Frontier Communications Parent, Inc. to enhance fiber broadband footprint and drive future growth
- Entered into a prepaid lease agreement with Vertical Bridge REIT, LLC to obtain exclusive rights to lease, operate and manage over 6,000 wireless towers
- Completed acquisition of select spectrum licenses from United States Cellular Corporation
- Announced a voluntary separation program for select U.S.-based management employees
Risk Factors:
- Intense competition in the markets Verizon operates in, including the inability to respond effectively to competitive factors
- Failure to take advantage of or respond to technological developments and changes in consumer demand
- Performance issues or delays in 5G network deployment resulting in significant costs or reduced benefits
- Adverse economic conditions, including inflation and changing interest rates, impacting affordability and demand for products/services
- Cybersecurity threats and attacks that could disrupt operations and networks
- Disruptions to key suppliers or vendors, including from geopolitical factors or climate change impacts
- Significant litigation and regulatory changes that could affect operations and financial results
- High debt levels and the availability/cost of future financing
Legal Matters:
- Involved in various litigation and regulatory proceedings at the state and federal level, though none currently deemed material
- Facing approximately 30 federal patent infringement lawsuits, primarily from non-practicing entities seeking monetary damages
Management's Discussion and Analysis:
- Consolidated operating revenues increased in 2024 primarily due to growth in the Consumer segment, partially offset by declines in the Business segment
- Consolidated operating expenses decreased in 2024, driven by lower cost of services and wireless equipment, partially offset by higher selling, general and administrative costs
- Consolidated net income, EBITDA, and Adjusted EBITDA improved in 2024 compared to 2023, reflecting the revenue and expense trends
- Significant capital investments in wireless networks, fiber, and other technologies to support growth and enhance network capabilities
- Strong cash flow from operations, though lower in 2024 due to higher cash taxes, interest expense, and pension contributions
- Maintained a mix of fixed and variable rate debt, with a focus on managing interest rate and foreign currency exposures
Earnings calls
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Earnings Report 2024Q4 (2025-01-24)
Key takeaways
- AI Connect is a Key Growth Driver: Verizon's AI Connect strategy represents a significant opportunity to leverage existing assets and capitalize on the growing AI infrastructure market.
- Financial Discipline Underpins Growth: Cost management and operational efficiencies are crucial for driving EBITDA and free cash flow growth, allowing for continued investment and debt reduction.
- Broadband Strategy is Effective: The combination of Fios and fixed wireless access is driving broadband subscriber growth and market share gains, with further expansion planned.
- Wireless Service Revenue Growth is Prioritized: Despite promo amortization headwinds, underlying wireless service revenue growth is strong, driven by pricing actions and subscriber additions.
- Consumer Segment is Improving: Strategic initiatives in the consumer segment, including myPlan and targeted marketing, are contributing to improved subscriber growth and ARPA.
- Business Group Turnaround is Promising: The Verizon Business Group is showing signs of improvement, driven by wireless growth, fixed wireless access adoption, and cost management.
- Capital Allocation Strategy is Balanced: Verizon is committed to investing in the business, growing the dividend, and paying down debt, with potential for share repurchases in the future.
Focus of management’s prepared remarks
- Wildfire Response: Verizon is actively working to restore service in affected areas, supporting first responders, and coordinating with public safety agencies. The network is holding up strong, maintaining critical connectivity.
- Financial Guidance Achievement: Verizon delivered on its financial guidance for 2024, with wireless service revenue and adjusted EBITDA growth exceeding the midpoint of guided ranges.
- Subscriber Growth: Nearly 2.5 million postpaid mobility and broadband subscribers were added in 2024, expanding margins. Postpaid phone net adds were nearly 900,000 for the year.
- Broadband Success: Nearly 1.6 million broadband subscribers were added, growing market share, led by fixed wireless access. The company ended the year with over 12.3 million broadband subscribers, including nearly 4.6 million fixed wireless access subscribers.
- Private Networks Expansion: Verizon continues to scale private networks, winning work with various organizations and being recognized as a leader in private wireless services by Gartner.
- Business Transformation: Efficiencies were driven through business transformation, reducing the workforce by close to 20,000 over the last three years.
- Strategic Investments: Investments were made in the business and strategic moves were executed for long-term growth, including customer-first offerings, brand refresh, and strategic transactions.
- Capital Allocation: The dividend was raised for the 18th consecutive year, and debt paydown continued, ending the year with a net unsecured debt to adjusted EBITDA ratio of 2.3 times.
- 2025 Priorities: Focus on wireless service revenue growth, adjusted EBITDA expansion, and strong free cash flow. Accelerate mobility and broadband growth while scaling private networks.
- AI Strategy: Verizon outlined a three-pronged AI strategy: enhancing experiences and driving efficiencies, personalizing products and solutions, and connecting to the AI ecosystem through Verizon AI Connect.
- Verizon AI Connect: Verizon AI Connect is a suite of offerings intended to meet the growing demand for AI applications, utilizing existing connectivity and edge compute assets.
Focus of the analyst Q&A
- AI Connect Opportunity:
- Size and potential of the AI Connect opportunity, both on the connectivity side and in terms of space and power.
- Timing of material revenue recognition from the $1 billion pipeline of AI Connect sales.
- Split between connectivity business and data centers long term within AI Connect.
- Upgrade Environment:
- Customer behavior regarding upgrades in Q4 and drivers behind the base case for upgrades embedded within the 2025 guidance.
- EBITDA Growth:
- Drivers contributing to the faster EBITDA growth guidance for 2025.
- Bridge items between EBITDA guidance and free cash flow guidance for 2025, including tax and working capital.
- Device Protection and Insurance Revenue:
- Underlying growth rate within the $2.9 billion device protection and insurance revenue bucket that will be reclassified.
- Trend of this revenue over the last several years and expectations for contribution next year.
- Fixed Wireless Access Growth:
- Impact of MDU solution on FWA growth, particularly in Tier 1 markets.
- Consumer Phone Net Adds:
- Expectations for consumer phone net adds to improve year-over-year.
- Potential slowdown in immigration growth and its impact on overall volumes.
- Wireless Service Revenue Growth:
- Sustainability of the pace of absolute revenue dollar growth on service revenue as we exit 2025 and go into 2026.
- Phasing of promo amortization headwinds and price-up tailwinds through the course of 2025.
- Competitive Environment and ARPA Growth:
- Competitive environment and ability to continue to take price selectively.
- Drivers around ARPA growth that are expected for the consumer business.
- Dark Fiber and AI Investments:
- Extent to which the AI opportunity is leveraging existing assets.
- Investments within the CapEx guidance targeted at the AI business.
- Other Revenue:
- Composition of "other" revenue after pulling fees and insurance out.
- Representation of the monetization of the cable relationship.
- Potential Comcast and Charter Combination:
- Implications of a potential Comcast and Charter merger for Verizon.
- Potential change of controls and bargaining power.
- Fios Expansion:
- Opportunity to expand Fios in the legacy footprint.
- Attractiveness of the bid opportunity for rural broadband expansion.
- Business EBITDA Inflection Point:
- Materiality of AI-related sales and confidence in an inflection point in business EBITDA.
- Sustainability of business EBITDA growth.
- Account Growth:
- Opportunity to turn account growth positive with newer segments.
- Expectations for account growth over the course of the year.
Summary
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Financial Performance
Verizon reported a successful year, meeting financial guidance with 3.1% wireless service revenue growth and 2.1% adjusted EBITDA growth. Strong free cash flow was generated despite higher taxes. Q4 saw solid growth in postpaid mobility with 568,000 postpaid phone net adds. Full-year adjusted EBITDA margin expanded by 50 basis points. Free cash flow for the quarter was $5.4 billion and $19.8 billion for the full year, including $2 billion from the Vertical Bridge tower transaction.
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Revenue Drivers
Wireless service revenue growth was driven by improving postpaid consumer phone net additions, healthy business phone volumes, pricing actions, fixed wireless access scaling, myPlan adoption, and an improving prepaid revenue profile. Broadband net adds were 408,000, driven by fixed wireless access and Fios. The company is reclassifying $2.9 billion of annual recurring device protection and insurance-related plan revenues from other revenue into wireless service revenue starting in Q1 2025.
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Profit Margins and Cost Management
Adjusted EBITDA margin expanded 50 basis points for the full year. Cost transformation initiatives, including the voluntary separation program, outsourcing, and customer care improvements, contributed to margin expansion. The company ended the year with less than 100,000 employees, down close to 20,000 over the last three years.
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Guidance and Outlook
For 2025, Verizon expects total wireless service revenue to grow between 2% and 2.8%. Consolidated adjusted EBITDA is expected to grow 2% to 3.5%. Full-year adjusted earnings per share growth is expected to be in a range of flat to up 3%. Capital spending for the full year is expected to be between $17.5 billion and $18.5 billion. Free cash flow is projected to be in the range of $17.5 billion to $18.5 billion. This guidance excludes any impact from the pending acquisition of Frontier, expected to close by early 2026.
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Strategic Initiatives
Key initiatives include scaling private networks, launching customer-first offerings, refreshing the brand, and strategic transactions like Frontier, the tower deal, US Cellular spectrum, and satellite partnerships. The company is investing in C-band deployment, Fios expansion, and launching a fixed wireless MDU solution. Verizon is also focusing on leveraging fiber and edge compute assets to open new revenue streams from the AI ecosystem through Verizon AI Connect.
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Management Commentary
Management expressed confidence in the company's momentum and strategic direction. They emphasized a focus on wireless service revenue growth, adjusted EBITDA expansion, and strong free cash flow. They highlighted the success of fixed wireless access and the potential of Verizon AI Connect. The tone was optimistic, with a clear emphasis on execution, financial discipline, and customer experience.
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Industry and Market Conditions
Management sees a growing demand for AI applications and infrastructure, with significant investment expected in the AI ecosystem. They believe Verizon is well-positioned to capitalize on this trend with its connectivity and edge compute assets. The competitive environment remains intense, but Verizon believes its network, products, and services provide a competitive edge.
Comparative analysis
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Benchmarks (as of 2025-04-17)
The Communication Services Select Sector SPDR Fund (XLC)
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Performance Comparison:
- Verizon Communications, Inc. (VZ) has shown mixed performance compared to The Communication Services Select Sector SPDR Fund (XLC). Over the past year, VZ has outperformed XLC, with returns of 17.14% versus 13.54%, respectively. However, over longer periods (2 and 3 years), VZ has significantly underperformed XLC. For example, over three years, VZ returned only 0.55% compared to XLC's 40.32%. More recently, VZ has demonstrated strong performance, outperforming XLC year-to-date with a return of 13.25% compared to XLC's -6.99%.
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Risk and Return Analysis:
- The annualized returns show that VZ has underperformed XLC over the 2 and 3-year periods. The 1-year annualized return for VZ is 17.14%, while XLC is 13.54%. However, the 2-year annualized return for VZ is 13.88%, while XLC is 25.36%, and the 3-year annualized return for VZ is 0.18%, while XLC is 11.95%.
- In terms of annualized volatility, VZ has generally exhibited lower volatility compared to XLC. For instance, in Q2 2022, VZ's volatility ranged from 16.92% to 29.19%, while XLC's ranged from 24.55% to 39.14%. This trend has continued in recent periods, indicating that VZ is typically less volatile than the broader communication services sector.
- The maximum drawdown for VZ was -40.31% on 2023-10-13, while for XLC it was -46.65% on 2022-11-03. This suggests that VZ has a slightly lower risk profile in terms of peak-to-trough declines compared to XLC.
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Risk-Adjusted Performance:
- The Sharpe Ratio for XLC has generally been higher than that of VZ, indicating that XLC has offered better risk-adjusted returns over the analyzed period. However, there have been periods where VZ's Sharpe Ratio has increased, suggesting improved risk-adjusted performance.
- The Beta value for VZ is generally below 1, indicating that it is less sensitive to market movements compared to XLC, which has a Beta around or above 1. This lower Beta suggests that VZ is less volatile relative to the market.
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Overall Assessment:
- Verizon Communications, Inc. (VZ) has shown recent outperformance compared to The Communication Services Select Sector SPDR Fund (XLC), particularly in the last year and year-to-date. However, over longer periods, VZ has underperformed XLC. VZ generally exhibits lower volatility and a lower Beta, indicating a more conservative risk profile. While XLC has provided better risk-adjusted returns based on the Sharpe Ratio, VZ's recent performance improvements and lower volatility may appeal to investors seeking stability in the communication services sector.
Peers Price History(as of 2025-04-17)
- Performance Comparison:
- Verizon (VZ) has consistently underperformed both AT&T (T) and Deutsche Telekom (DTE) across various timeframes. For example, over the past year, VZ's return was 17.14%, significantly lower than AT&T's 74.91% and Deutsche Telekom's 66.89%. This trend is also evident in the year-to-date, 6-month, 2-year, and 3-year performance metrics.
- Risk and Return Analysis:
- Verizon (VZ) has provided lower annualized returns compared to its peers. Over the past year, VZ's annualized return was 17.14%, while AT&T's was 74.91% and Deutsche Telekom's was 66.89%.
- Verizon (VZ) generally exhibited high annualized volatility, similar to AT&T (T), but higher than Deutsche Telekom (DTE). For instance, in Q3 2023, VZ's volatility ranged from 15.37% to 32.65%, comparable to AT&T's range of 14.69% to 37.52%, while Deutsche Telekom's was lower, ranging from 15.07% to 19.04%.
- Verizon (VZ) experienced a maximum drawdown of -40.31% on 2023-10-13, which is more severe than AT&T's -36.46% on 2023-07-18 and Deutsche Telekom's -20.34% on 2022-09-30. This indicates a higher risk profile for VZ.
- Risk-Adjusted Performance:
- Verizon (VZ) generally had lower Sharpe Ratios compared to AT&T (T) and Deutsche Telekom (DTE), indicating poorer risk-adjusted returns. For example, in Q1 2025, VZ's Sharpe Ratio ranged from 0.02 to 1.21, while AT&T's ranged from 1.69 to 2.83, and Deutsche Telekom's ranged from 1.63 to 3.1.
- The beta values for Verizon (VZ) were consistently below 1, indicating that the stock is less volatile than the market. In Q1 2025, the beta for VZ ranged from -0.14 to 0.06, suggesting a negative correlation to the market.
- Overall Assessment:
- Verizon (VZ) has underperformed its peers, AT&T (T) and Deutsche Telekom (DTE), in terms of historical performance and annualized returns. VZ exhibits higher volatility and more severe drawdowns, resulting in poorer risk-adjusted returns as indicated by its lower Sharpe Ratios. The defensive risk profile, as indicated by beta values below 1, suggests that VZ is less prone to market volatility, but its negative correlation to the market in Q1 2025 is a notable anomaly.
- A significant trend is the consistent underperformance of VZ relative to its peers across multiple metrics. Investors seeking higher returns and better risk-adjusted performance may find AT&T (T) and Deutsche Telekom (DTE) more attractive options based on this analysis.
Peers Fundamentals(as of 2024-12-31)
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Market Position and Size:
- Verizon Communications Inc. (VZ) has a significant market presence with a market capitalization of $185,848.8 million.
- While slightly smaller than AT&T Inc. (T) at $194,887.59 million, VZ's market cap is notably larger than Deutsche Telekom AG (DTE) at $155,588.67 million.
- VZ generates substantial revenue, reporting $134,788 million, surpassing both AT&T ($122,336 million) and Deutsche Telekom AG ($115,768 million).
- The company's net income of $17,506 million also exceeds that of AT&T ($10,948 million) and Deutsche Telekom AG ($11,209 million), indicating strong profitability relative to its peers.
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Profitability and Efficiency:
- VZ exhibits solid profitability metrics, with a gross profit margin of 46.59%, outperforming AT&T (42.94%) and Deutsche Telekom AG (24.18%).
- Its EBITDA margin of 36.06% is competitive, although slightly lower than Deutsche Telekom AG's 42.4%.
- VZ's net profit margin of 12.99% is higher than both AT&T (8.95%) and Deutsche Telekom AG (9.68%), showcasing efficient cost management and strong bottom-line performance.
- The company's return on average assets (4.58%), return on average total equity (18.27%), and return on average total capital (11.42%) all exceed industry averages, indicating efficient use of resources.
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Financial Health and Stability:
- VZ's current ratio of 0.58 and quick ratio of 0.55 are lower than the industry average, suggesting potential liquidity challenges.
- Its total debt to total equity ratio of 169.65 is lower than Deutsche Telekom AG's 231.38 and the industry average of 210.01, indicating a more conservative capital structure.
- The debt/EBITDA ratio of 2.96 is also favorable, suggesting manageable debt levels relative to earnings.
- VZ's cash flow to total debt ratio of 23.18% is strong, indicating a solid capacity to meet its debt obligations.
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Valuation and Market Perception:
- VZ's enterprise value to sales ratio of 2.48 and enterprise value to EBITDA ratio of 6.38 are lower than the industry averages, suggesting potential undervaluation.
- Its price-to-earnings ratio of 10.62 is also lower than AT&T's 18.2, Deutsche Telekom AG's 13.99, and the industry average of 32.76, further supporting the undervaluation thesis.
- The price-to-book ratio of 1.87 and price-to-sales ratio of 1.38 are also relatively low, indicating that the market may not be fully recognizing VZ's intrinsic value.
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Cash Flow and Capital Management:
- VZ's net operating cash flow is $36,912 million, slightly less than AT&T ($38,771 million) and Deutsche Telekom AG ($39,874 million).
- The company's total capital expenditure is $17,990 million, reflecting ongoing investments in infrastructure and technology.
- VZ generates a free cash flow of $18,922 million, which is higher than AT&T ($18,508 million) but lower than Deutsche Telekom AG ($20,703 million).
- VZ's cash conversion ratio of 0.48 is lower than the industry average, indicating room for improvement in managing working capital.
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Growth and Future Prospects:
- VZ's year-over-year revenue growth of 0.61% is modest, but its EBITDA growth of 4.09% and net income growth of 50.73% are more encouraging.
- The company's free cash flow has also grown significantly, with a year-over-year increase of 46.55%.
- However, VZ's 3-year and 5-year compound annual growth rates (CAGR) for revenue and EBITDA are relatively low, suggesting limited long-term growth potential.
- VZ's growth in net income and earnings per share has been highly volatile, indicating potential risks and uncertainties in its future performance.
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Potential for Investment:
- VZ presents a compelling investment opportunity due to its strong profitability, efficient returns, and relatively low valuation.
- The company's higher earnings per share and lower P/E ratio could indicate better shareholder value compared to its peers.
- VZ's strong cash flow generation and manageable debt levels mitigate some of the risks associated with its lower liquidity ratios.
- However, investors should be aware of VZ's limited long-term growth potential and the volatility in its net income and earnings per share.
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Key Risks and Considerations:
- VZ's lower liquidity ratios compared to the industry average could pose challenges in meeting short-term obligations.
- The company's limited long-term growth potential and the volatility in its net income and earnings per share could impact its future performance.
- VZ's underperforming gross profit margin relative to the industry average suggests potential inefficiencies in its cost structure.
- The intense competition in the telecommunications industry and the rapid pace of technological change could also pose risks to VZ's future prospects.
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Overall Assessment:
- Verizon Communications Inc. (VZ) is a financially sound company with strong profitability, efficient returns, and a relatively low valuation.
- While its liquidity ratios are a concern, its strong cash flow generation and manageable debt levels mitigate some of the risks.
- VZ's limited long-term growth potential and the volatility in its net income and earnings per share are important considerations for investors.
- Overall, VZ presents an attractive investment opportunity for value-oriented investors seeking stable income and potential capital appreciation.
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