A Wireless Company For Your Portfolio
Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Verizon (NYSE: VZ) is the United States’ largest wireless telecom company with over 110 million subscribers. As well as operating the nation’s largest wireless network, Verizon also delivers TV, internet, and landline phones to customers through their Verizon FiOS service.
Verizon was formed in June of 2000 via a merger of Bell Atlantic and GTE. Their current network covers 290 million people in the United States and provides services to over a third of them.
Verizon operates their wireless network in all 50 states, their wireline network in 28 states, and offers products to 19 different countries.
Wireline made up for 37% of Verizon’s revenue in 2011 and domestic wireless made up the other 63%.
The Bosses & Owners
Lowell McAdam is the Chairman and Chief Executive Officer at Verizon and he has been in those roles since September 2010. During his time at the helm of the company Verizon has returned 37%, beating the S&P 500 by around 9%.
Insiders at the company account for less than 1% of total ownership, this is not surprising due to the size and formation of Verizon. Institutions hold 55% of the float in Verizon with the largest holder being The Vanguard Group, holders of 125 million shares or 4.38% of the company.
How is it Performing?
Over the last 12 months Verizon has failed to beat the S&P 500. The company has returned 9% and the broader market would have given the investor a 14.93% gain.
Over the last decade, Verizon has grown sales. In 2002, sales were $67.06 billion and they have grown to $110.88 billion in 2011, a 65% growth rate, or approximately 5.2% on an annualized basis. Over the same time period, EPS in the company has dropped from $1.67 to $0.85.
The 5-year annual average sales growth is 4.69% for Verizon while the industry as a whole is at 12.27%. Dividends at the company are growing by a rate of 4% per year over the last five years.
The P/E ratio is 40.6 at the time of writing. Price/sales is a lot healthier looking at 1.09 and the price/book is a little on the high side at 3.3.
Management at Verizon is quite efficient; the company earns $63,000 per employee while the industry standard is around $36,000.
AT&T poses the biggest threat to Verizon in both the wireless game and the digital TV/ home internet industry with AT&T U-Verse. Both companies have a strong foothold in the wireless market and I think they will continue duking it out for subscribers for some time to come.
Sprint holds the greater advantage in the current wireless arms race though as they have so much to gain. The company is one of the few that still offers unlimited wireless packages and as they continue to tout that, they continue to gain in their subscriber numbers.
Take a look at this chart for company vs. company specs:
|Mobile Subscriber Share %||31%||33%||17%|
|10GB Data Cost||$100||$80||Included in unlimited plan|
|Revenue Growth 5YR||1.79%||4.15%||-2.92%|
As you can see from above, Verizon is the winner in a majority of the categories that investors look at the most for their long term holders. Sprint does not make a profit and their revenue growth over the last five years is actually negative. Verizon averages 4.15% per year for that same category which is more than reasonable for a company of its size.
AT&T does offer a bigger dividend but both companies have an alarmingly high payout ratio according to Morningstar. AT&T is clocking in at 230% whereas Verizon's payout ratio is 185%.
In terms of caps, it would seem that the Fool's prefer Verizon out of the three wireless providers.
The significant competition in the US wireless field may impair Verizon’s market share over time. In an industry where technology is ever changing, Verizon must keep pushing to invest in the latest and greatest in order to ensure that neither Sprint nor AT&T are able to catch up.
The company could also see many regulatory issues which could bring a halt to some methods of their business. While it is unlikely that the FTC will do anything detrimental to the profits at these companies, it certainly isn’t out of the question.
Verizon isn't going anywhere. This company is for the long term investor and it is definitely the company to go with if you want to diversify into the wireless providers. Verizon offers a hefty dividend to investors and also continues to provide a decent year-over-year revenue growth statistic.
The P/E ratio is a little high but this is the norm for utility and phone service providing companies as they offer stability and a high dividend.
If you want to go with the riskier play in the wireless market then Sprint is the horse you should bet on.
Ash1402 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!