Telecom giant Verizon Communications Inc. (VZ) reported better-than-expected earnings and revenue in the final quarter of fiscal 2022. The company’s wireless service revenue in the fourth quarter came in at $18.80 billion, representing an increase of 5.9% year-over-year. Its postpaid phone net additions were 217,000, while its retail postpaid net additions were 1,434K, representing its best single quarter performance in seven years.

For fiscal 2022, VZ’s retail postpaid net additions increased 23.2% year-over-year to 2,605K, driven by strong fixed wireless connections, tablet, and wearables adoption, and sequential improvement in phone net additions. The company’s total broadband net additions of 416,000 in the fourth quarter were driven by solid demand for Fios and fixed wireless products, and it was its best total broadband performance in over a decade.

Moreover, Fios internet net additions were 59,000 in the fourth quarter. Total broadband net additions for fiscal 2022 were 1,290K, up from 409,000 from the year-ago period.

VZ Chairman and CEO Hans Vestberg said, “We delivered on the operational expectations and financial targets that we set in the second half of 2022. We are rapidly building out our C-Band spectrum with the most aggressive network deployment in our company’s history and are well-positioned to improve and accelerate our performance. Wireless mobility and nationwide broadband will be two of the most significant contributors to our growth for the next several years.”

Earlier, Vestberg said the company was on track to reach 200 million POPs within the first quarter of 2023. For fiscal 2023, the company has guided for total wireless service revenue growth between 2.5% and 4.5%. Its adjusted EBITDA is expected to come between $47 billion and $48.50 billion, while its adjusted EPS is expected to come between $4.55 to $4.85.

Its capital spending for the whole year is expected to be between $18.25 billion and $19.25 billion (including an approximate $1.75 billion for C-Band).

The company pays reliable dividends. It has increased its dividend for 16 consecutive years. VZ pays a $2.61 per share dividend annually, which translates to a 6.47% yield on the current share price. Its four-year dividend yield is 4.72%.

The company’s dividend payouts have grown at CAGRs of 2% and 2.1% over the past three and five years, respectively. It paid a quarterly dividend of 65.25 cents on February 1, 2023.

VZ’s stock has gained 5.3% in price over the past three months, while it has declined 24.3% over the past year to close the last trading session at $40.33.

Here’s what could influence VZ’s performance in the upcoming months:

Mixed Financials

VZ’s total operating revenues increased 3.5% year-over-year to $35.25 billion in the fourth quarter ended December 31, 2022. Its adjusted EBITDA declined marginally to $11.75 billion. The company’s net income increased 41.4% from the prior-year quarter to $6.70 billion. In addition, its adjusted EPS came in at $1.19, representing a decline of 10.5% year-over-year.

Its total operating revenues for the fiscal year ended December 31, 2022, increased 2.4% year-over-year to $136.84 billion. Its consolidated adjusted EBITDA declined marginally year-over-year to $47.87 billion. The company’s net income declined 3.8% year-over-year to $21.75 billion. Its adjusted EPS decreased 5.8% from the previous year to $5.18.

Mixed Analyst Estimates

Analysts expect VZ’s EPS for fiscal 2023 to decline 9.5% year-over-year to $4.69. On the other hand, its EPS for fiscal 2024 is expected to increase 1.6% year-over-year to $4.76. Its revenue for fiscal 2023 and 2024 is expected to increase 0.9% and 1.2% year-over-year to $138.01 billion and $139.59 billion, respectively.

It surpassed the consensus revenue estimates in each of the trailing four quarters and the consensus EPS estimates in three of the trailing four quarters.

Mixed Valuation

In terms of forward non-GAAP P/E, VZ's 8.60x is 48% lower than the 16.53x industry average. Its forward EV/EBIT of 11.42x is 23.1% lower than the 14.84x industry average. Also, the stock's 7.31x forward EV/EBITDA is 17% lower than the 8.81x industry average.

On the other hand, its 2.53x forward EV/S is 27% higher than the 1.99x industry average. Likewise, its 18.48x forward non-GAAP PEG is significantly higher than the 1.62x industry average.

High Profitability

In terms of the trailing-12-month gross profit margin, VZ’s 56.79% is 14.4% higher than the 49.65% industry average. Likewise, its 32.61% trailing-12-month EBITDA margin is 69.3% higher than the industry average of 19.26%.

Furthermore, the stock’s 16.87% trailing-12-month Capex/Sales is 332.6% higher than the industry average of 3.90%.

POWR Ratings Reflect Uncertainty

VZ has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. VZ has a C grade for Value, in sync with its mixed valuation.

It has a B grade for Stability, consistent with its 0.35 beta. Its high profitability justifies its B grade for Quality.

VZ is ranked #4 out of 20 stocks in the Telecom - Domestic industry. Click here to access VZ’s Growth, Momentum, and Sentiment ratings.

Bottom Line

Despite the uncertain macroeconomic environment, VZ ended 2022 with strong growth in wireless service revenue. The company expects wireless mobility and nationwide broadband to drive its long-term growth.

However, the company’s fiscal 2023 earnings outlook was below analyst estimates. Moreover, amid fierce competition, the company’s capital expenditure is expected to decline by more than $5 billion from 2022 to approximately $17 billion in 2024. Aggressive wireless promotions are expected to affect its earnings in fiscal 2023.

Therefore, given its mixed financials, mixed analyst estimates, and mixed valuation, it could be wise to wait for a better entry point in the stock.

How Does Verizon Communications Inc. (VZ) Stack up Against Its Peers?

VZ has an overall POWR Rating of C, equating to a Neutral rating. Check out these other stocks within the Telecom – Domestic industry with an A (Strong Buy) or B (Buy) rating: Ooma, Inc. (OOMA), Spok Holdings, Inc. (SPOK), and IDT Corporation (IDT).

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VZ shares rose $0.02 (+0.05%) in premarket trading Wednesday. Year-to-date, VZ has gained 3.97%, versus a 7.90% rise in the benchmark S&P 500 index during the same period.

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.

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