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Verizon Communications Is on Track to Benefit From Smartphone Growth

July 14, 2014 | About:
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kcpl

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Verizon Communications (VZ) has been on the back foot in 2014 with its stock down 2%. Yet, this should not worry investors much as the company pays a strong dividend of 4.4%. Let's have a closer look at its prospects and what we can expect from the company in the future.

Growth prospects

The telecommunications giant is taking solid initiatives to boost its growth. The company is focusing on consistent and strategic investments in 4G LTE, which will yield high network quality, reliability, and improve the user experience. Its next generation apps, devices, and solutions will change the way customers interact, and consequently increase its sales in the future. This is indeed a positive sign for investors.

With increasing competition, the company is investing in innovative products to strengthen its product portfolio. Keeping this in mind, Verizon has partnered with Intel to purchase its media assets that will help the company develop cloud TV products and services. Verizon will purchase the intellectual property rights and other assets that Intel has in its cloud platform. This is a significant move for the company, as it will provide its video services integrated with Verizon’s FiOS fiber-optic-networks.

Apart from this it has also invested in its wireline segment, which will improve its services and the solutions it offers in FiOS, global IP, security, and cloud services. The company believes that these strategic investments will increase its efficiency and reduce its cost structure.

Solid growth

The company had solid sales last fiscal with 4.1 million new postpaid net additions and 4.2 million new 4G LTE smartphone customers. It also added 1.8 million new internet devices, which include 1.5 million tablets. Verizon also added 360,000 Home Phone Connect customers. With a disciplined approach, the company expects to further increase its customer base in a highly competitive market. Management expects that increasing its sales will boost its profit numbers during the current fiscal.

Its revenue for the last quarter increased 6.4%, mainly on account of the increase in prices for FiOS. And for the current fiscal, the company anticipates a positive trend in its consumer and mass market, and expects a sustainable growth rate of 4%.

As already mentioned, FiOS was one of the key growth drivers of the company. Talking about numbers, Verizon added 126,000 new FiOS customers during the fourth quarter last year, and it expects the same trend to continue in the future as well. Currently, it has a total of 6.1 million FiOS subscribers, which represents 39.5% of total broadband penetration. It also added 92,000 FiOS Video subscribers in its wireline segment in the fourth quarter.

It also saw solid growth in its cash flows, as its cash from operations rose 23% in the last quarter, while its free cash flow increased 45% to $22.2 billion as compared to last year. As of now, Verizon has a total of $54.13 billion in cash, which is sufficient to meet its dividend obligations. Moreover, since it has a payout ratio of 52%, the company can easily increase its dividend in the future as it has a strong cash position.

Conclusion

Currently, Verizon has a trailing P/E of 12, which is quite impressive as compared to the industry average P/E of 17.84. In addition to this, it has an operating margin of 26.5%, which is more than its rival AT&T. Along with this, it has a solid cash position, which is an impressive sign. Considering these factors, Verizon is well-positioned for growth and can perform even better in the long run.


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