Verizon (VZ – Free Verizon Stock Report), a telecommunications giant and Dow-30 component, reported 2019 fourth-quarter earnings of $1.13 a share, two cents shy of our estimate and a penny higher than the year-ago figure, on a better-than-expected 1.4% top-line improvement. Investors seemed rather unfazed by the company's recent performance, with Verizon stock more or less flat on the news.
As a reminder, beginning in the June quarter of last year, Verizon started reporting financial and operational results under its new operational structure, Verizon 2.0. Under this new structure, there are two reportable segments: Consumer and Business. This reflects the company's customer-centric approach to address evolving customer needs, deliver best-in-class customer experiences, and drive continued leadership in 5G.
Total Verizon Consumer revenues for the fourth quarter came in at $24.2 billion, up 2.0% year over year, with much of the good news attributable to continued strong growth in wireless service revenues and FiOS service offerings, offset by declines in wireless equipment and legacy wireline services. Consumer wireless service revenues were up 1.9% in the interim, thanks to customer step-ups to higher-priced plans and an increase in connections per account. In addition, the Consumer segment added 852,000 wireless retail postpaid net additions in the December period, while the Business division reported 396,000 such additions during the quarter, bringing Verizon's total number of retail connections to 119.8 million (up 2.1% year over year). As a result, the company ended the December period with the highest number of fourth-quarter wireless additions in the last six years. And Business revenues, which were up a modest 0.8% for the quarter, yet down 0.3% for the year, continue to be tempered by declines in legacy wireline products and the shift away from traditional linear video bundles.
Verizon has earmarked approximately $17 billion to $18 billion for capital projects in 2020, with a lion's share of this amount going toward the expansion of 5G in new and existing markets, the densification of 4G, and the continuation of the fiber build-out.
In 2018, Verizon announced a goal of achieving $10 billion in total cash savings by 2021. The initiative, which includes zero-based budgeting, has yielded approximately $5.7 billion of cumulative cash saving since the program began. And management seems well on its way to meeting its goals, which would definitely augur well for the company's bottom line going forward. Indeed, we now look for Verizon to post 2020 earnings of $4.95 a share, on a low-single-digit top-line improvement. Much of the expected earnings improvement is attributable to the combined effects of a significant drop in the company's effective income tax rate (the result of tax reform) and improving margins, thanks to the above savings initiatives.
All told, this blue chip stock remains a good choice for conservative investors, thanks to its impressive yield (almost twice that of the Value Line median), Highest (1) Safety rank, and worthwhile capital-appreciation potential three to five years hence.
About The Company:Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 298 million and provides service to nearly 98.2 million. In the decade or so, it has acquired MCI (1/06), Alltel (1/09) and Yahoo! (6/17). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
– Kenneth A. Nugent
