VZ - Embedded Expectations Analysis - 2019 09 24
Verizon Communications Inc. (VZ:USA) currently trades near recent averages relative to UAFRS-based (Uniform) Earnings with an 18.4x Uniform P/E. At these levels, the market is pricing in expectations for profitability to remain at current levels, but management may be concerned about leverage, service revenue, and cost pressures.Specifically, management is confident that their effective tax rate is up 100bps a year and that they are seeing cost pressures from technology shifts. Furthermore, they may lack confidence in their ability to meet their leverage target, and may be concerned about meeting customers' demands for 5G speeds. Additionally, they may lack confidence in their ability to sustain strong service revenue growth, and may be concerned about further declines in desktop advertising. Finally, they may be exaggerating the extent to which rating agencies value their operating improvements.
Verizon Communications is a holding company. Through its subsidiaries, the company provides communications, information and entertainment products and services to consumers, businesses and governmental agencies. The company has two reportable segments, Verizon Consumer Group (Consumer) and Verizon Business Group (Business). The company's Consumer segment provides consumer-focused wireless and wireline communications services and products under the Verizon brand and through wholesale and other arrangements. The company's Business segment provides, among others, wireless and wireline communications services and products, video and data services, corporate networking solutions, security and managed network services.
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