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Verizon Communications Inc VZ

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Morningstar’s Analysis

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Verizon Posts Solid Q4 Results as C-Band Auction Looms; Shares Fairly Valued

Analyst Note

| Michael Hodel, CFA |

Verizon Communications posted solid fourth-quarter results and offered a reasonably strong outlook for 2021, calling for wireless services revenue growth of at least 3% (up from 0.7% in 2020). However, quarterly results ignore the sizable elephant in the room: the C-band spectrum auction, which recently ended with more than $80 billion in winning bids. The firm can’t discuss the auction until the Federal Communications Commission reveals winning bidders, but Verizon ended 2020 with $22 billion in cash on hand, a huge pile that indicates it was a big spender. As the C-band auction heated up late last year, we lowered our fair value estimate to $57 per share from $59 on the expectation that Verizon would spend $40 billion to acquire new spectrum licenses; that estimate still looks reasonable to us. We believe the shares are fairly valued.

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Company Profile

Business Description

Verizon is now primarily a wireless business (70% of revenue and nearly all operating income). It serves about 89 million postpaid and 4 million prepaid phone customers and connects another 24 million data devices, like tablets, via its nationwide network, making it the largest U.S. wireless carrier. Fixed-line telecom operations include local networks (12% of revenue) in the Northeast, which reach about 25 million homes and businesses, and nationwide enterprise services (10%). Recent investments, including fiber network construction, have supported the wireless business in addition to expanding traditional fixed-line capabilities. Verizon Media Group, the online media and advertising firm formed with the acquisitions of AOL and Yahoo, provides the remainder of revenue.

Contact
1095 Avenue of the Americas
New York, NY, 10036
T +1 212 395-1000
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 133,200

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