Over the last few quarters, Verizon Communications (VZ) has grappled with issues such as a decline in core wireless subscribers, intense competition from rivals, lower than estimated earnings, free cash flow constraints, and complications in the acquisition of Yahoo’s Internet business. Analysts expect Verizon’s revenue to fall 1% in fiscal 2017 and its earnings to fall 3%.
Aggressive expansion plans
Over the past two years, Verizon has boosted its presence in online advertising, streaming videos, and adjacent wireless markets by acquiring a number of companies. These acquisitions are expanding Verizon’s wireless reach beyond the highly saturated smartphone market and gradually transforming it into a media company. Some believe that could help the company offset declines in wireless (IYZ) subscribers.
Redefining business focus
However, aggressive expansions have caused its long-term debt to rise significantly from $92.9 billion at the end of June 2016 to $115.3 billion in 3Q17. To lessen the debt burden, Verizon could divest some of its non-core businesses. It has already sold data centers, landline assets, and its cloud and managed hosting business. In the coming years, Verizon expects to focus on the expansion of its digital offerings and 5G (fifth-generation) technologies to drive its future business growth.
Analysts expect Verizon’s revenue and earnings to rise 2% and 3%, respectively, in 2018. Currently, the stock offers a dividend yield of 4.4% and is trading at a forward earnings ratio of 14.1x, which is lower than the sector average of 26.4x. Comcast (CMCSA), AT&T (T), and CenturyLink (CTL) are trading at 16.6x, 13.3x, and 9.9x, respectively.