Fierce competition in the communications business is forcing the industry’s leading companies to make continual adjustments.
This Internet and wireless giant has moved aggressively, making several big deals to expand its networks and customer base. While this strategy adds risk, it is already generating better-than-expected revenue. And the stock is trading at a modest multiple to projected earnings.
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VERIZON COMMUNICATIONS INC. (New York symbol VZ; www.verizon.com) has 115.3 million wireless users, 13.1 million phone customers and 15.5 million Internet and TV subscribers.
Earlier this year, Verizon completed its purchase of Yahoo’s Internet search business and related websites. Then it combined Yahoo’s operations with AOL websites it acquired in 2015 (including the Huffington Post, TechCrunch and Engadget) to create Oath. This merged media business contributed $2.0 billion to the company’s revenue in the most recent quarter. That’s ahead of Verizon’s internal forecast.
Overall in the quarter ended September 30, 2017, Verizon earned $3.62 billion, or $0.89 a share. That’s unchanged from a year earlier. If you exclude acquisition costs and other unusual items, the company earned $0.98 a share in the latest quarter. Revenue increased 2.5%, to $31.7 billion from $30.9 billion.
The company added to its fibre network infrastructure in August with the acquisition of the Chicago-area assets of WideOpenWest, Inc. (New York symbol WOW). Verizon paid $225 million and aims to close the deal in early 2018.
The company plans to test its new 5G high-speed wireless service in three to five U.S. cities in 2018. This new system uses radio signals to connect customers to the Internet instead of telephone lines and fibre-optic cables.
If successful, 5G technology will make it easier for Verizon to offer Internet and TV services to more households. Right now, it has 7 million high-speed customers, while big cable TV providers Comcast and Charter Communications have a combined total of 48 million users.
Value Stocks: Chief goal of NFL deal is to draw online and mobile customers
The company recently signed a new deal that will let it stream National Football League games over its mobile networks and Internet sites such as Yahoo Sports.
Verizon has yet to reveal the sales price, but media reports suggest it agreed to pay $2.25 billion over the next five years. To put that in context, it earned $3.6 billion, or $0.89 a share, in the third quarter of 2017.
The company is just one of several with broadcast rights to NFL games, so the deal is not for exclusive Internet coverage. As well, Verizon says it will not charge its customers extra to watch the games. However, offering live sports should help draw more customers to its online and mobile services, particularly as more consumers cancel their cable TV subscriptions.
Verizon last raised its quarterly dividend with the November 2017 payment by 2.2%, to $0.59 a share from $0.5775. The new annual rate of $2.36 yields a high 4.4%.
Verizon has now increased its dividend each year for the past 11 years. That payment has increased an average of 2.8% over the past 5 years.
The company will likely earn $3.88 a share in 2017, and the stock trades at a moderate 13.7 times that forecast.
Recommendation in Wall Street Stock Forecaster: Verizon is a buy.
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