D.M. Martins Research Games T VZ

Verizon Is The Best U.S. Carrier Stock, Period – Verizon Communications (NYSE:VZ)

Verizon Is The Best U.S. Carrier Stock, Period - Verizon Communications (NYSE:VZ)

If buyers wanted additional proof that Verizon (VZ) is probably the most effective U.S. service to spend money on, this Tuesday’s 3Q18 earnings outcomes might have been it.

The New York-based mostly telecom big delivered income progress of three% over a 3Q17 that had began to see a return to constructive prime-line progress. Tight value administration and decrease taxes additional helped to supply non-GAAP EPS of $1.22, 25% greater YOY, that beat consensus by three cents.

Credit score: BGR

Strong op metrics as soon as once more took middle stage in producing a lot of the quarter’s strong monetary outcomes. Following a current development that means market share achieve over key rivals, utilization improved in 3Q18. Within the essential wi-fi enterprise (70% of complete revenues, strong 6% YOY progress), retail internet provides reached over half one million, even with out the comp advantage of the early 2017 limitless knowledge promotions.

Postpaid churn of 1.04% was not notably low, however fell inside expectations and some bps greater YOY. On complete postpaid connections, Verizon reached a excessive of 112.1 million, a 2% enchancment over yr-in the past ranges that has remained constant all through the present yr.

See key op metrics graph under.

Supply: DM Martins Analysis, utilizing knowledge from firm reviews

Even when gross margin dipped a very good bit YOY (however lower than within the first and second quarters), notably pressured by the legacy wireline enterprise that registered the bottom op margin of the previous eight quarters, opex financial savings helped to push complete firm non-GAAP op margin up a strong 78 bps. Verizon has strengthened its 2021 goal of producing $10B in cumulative money financial savings, which this quarter produced what I estimate to have been a welcome 11 cents in EPS tailwinds.

See simplified P&L under.

Supply: DM Martins Analysis, utilizing knowledge from firm reviews

I’ll repeat right here my remarks from final quarter: “I believe the encouraging results presented above speak not only to positive macro factors, with the heated U.S. economy probably boosting discretionary spending and causing wireless service consumers to be a bit less price sensitive, but also to the ‘strong loyalty’ that Verizon’s management gloated about [in 2017]”. Verizon, it appears, stays heading in the right direction.

On the inventory

In April of this yr, I made a well timed choice to scratch my bullishness in the direction of peer AT&T (T) and embrace my choice for Verizon within the telecom area. The latter appeared to be doing a lot better on key op metrics, whereas the previous remained entangled within the mega merger with Time Warner whereas struggling to show the tides on its mobility and leisure companies.

Since then, VZ has gained about 17% in market worth, whereas its key competitor has been buying and selling largely flat. And I do not assume the constructive development will finish right here.

In the present day, I reinforce my pleasure about VZ, pushed by a mixture of things: (1) excellent efficiency within the U.S. wi-fi enterprise in comparison with friends, whereas (2) the corporate helps an attractive dividend coverage and produces strong trailing FCF yield of about 5%. It doesn’t harm that shares commerce at a compelling 12.1x subsequent-yr earnings a number of — and that it might, as a defensive inventory, carry out higher than common within the occasion of a extra pronounced correction within the broad inventory market.

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Disclosure: I’m/we’re lengthy VZ.

I wrote this text myself, and it expresses my very own opinions. I’m not receiving compensation for it (aside from from In search of Alpha). I’ve no enterprise relationship with any firm whose inventory is talked about on this article.

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