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Summary of Operations
Verizon is an American telecom, broken into two segments: the Consumer Group and the Business Group. Consumer is focused on providing wireless services to individuals. It accounted for $95.3 billion in revenue (71% of 2021). Business offers more scope, to meet different commercial needs, which includes data, video and conferencing, corporate networking, Internet of Things, and so on. It accounted for $31 billion revenue for 2021.
The primary engine of cash is their monthly mobile phone wireless service, being one of the top three service providers in the United States (versus AT&T and T-Mobile). In 2021, Verizon generated about $19 billion in free cash flow.
Strategy
Verizon believes the key to success lies in wireless service that is fast, reliable, and reasonably priced for the customer. To this end, they have focused heavily on the development of 5G technology and have built it into their infrastructure to allow for a seamless transition from their existing 4G assets without problems for the customer. This evolution was funded by taking on debt. Nevertheless, with their large moat of customers, a healthy operating margin, and positive cash flows, they have a pathway to paying this off.
Growth and the Future
Verizon believes it has sufficient means to meet rising demand for its services and expand its network. This company should be a steady compounder for owners. Shares of VZ have a decent yield (over 4% as I write this), and dividends frequently account for half of free cash flows. The company also has a history of increasing the dividend annually. This may prove easier to do after the debt is paid, and so the dividend should be main way to value an investment in the stock.
Miscellaneous Information
Readers might like this article discussing the former Verizon Media Group.
Valuation
Growth Assumptions: 5% first 5 years, 10% second 5 years
Intrinsic Value Per Share: $37
Again, remember that this is for a 10% return. As a primary cell phone service provider who won’t simply disappear, some might still see VZ as a hedge.
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