Verizon is a leader in the telecommunications industry. The company was created in July 2000 when Bell Atlantic and GTE merged.

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1 Report created Jan 25, 2017 Page 1 OF 6 Verizon is a leader in the telecommunications industry. The company was created in July 2000 when Bell Atlantic and GTE merged. Analyst's Notes Analysis by Joseph Bonner, CFA, January 24, 2017 ARGUS RATING: BUY Shares fall on disappointing 2017 guidance Verizon reported a modest decline in revenue and EPS in 4Q16, though the adjusted EBITDA margin expanded. Investors were disappointed by management's 2017 revenue and EPS guidance, sending VZ shares down more than 4% on January 24. We are lowering our adjusted 2017 EPS estimate to $3.84 from $4.04 and establishing a 2018 forecast of $3.95. Verizon appears favorably valued at current levels, with a projected 2017 P/E of 13.1, below the peer average of INVESTMENT THESIS We are maintaining our BUY rating on Verizon Communications Inc. (NYSE: VZ) to a target price of $60. Despite its high-quality customer base and 'Tiffany network' status, Verizon is suffering from the ongoing price/service war in the U.S. telecom industry, as indicated by its 4Q16 results. While Verizon has not changed its strategy of looking for profitable growth from high-value post-paid customers, it has countered low-ball offers from Sprint and T-Mobile with plan changes and promotions of its own. Although the company retains the highest return on capital in the industry at 12.7%, above the average of 6.6%, we will be keeping a close eye on its operating metrics. Verizon's planned acquisition of Yahoo's operating businesses has become less certain following the revelation of two massive data breaches. Assuming that the deal does not fall through, we believe that the purchase price could be cut significantly. Meanwhile, Verizon continues to build out its wireless video network capabilities and to diversify into new revenue streams such as digital video advertising. As the U.S. wireless smartphone market has reached saturation, Verizon expects wireless video and the 'internet of things' to drive data usage, revenue, and earnings. We think that management's strategy of driving increased data usage aligns well with secular market trends. Verizon also plans to maintain its lead in wireless network connectivity as it moves to the next-generation 5G standard. Verizon appears favorably valued at current levels, with a projected 2017 P/E of 13.1, Data Pricing reflects previous trading week's closing price. 200-Day Moving Average Price ($) 55 Rating EPS ($) Target Price: $ Week High: $ Week Low: $49.79 Closed at $52.72 on 1/20 Quarterly Annual ( Estimate) 3.95 ( Estimate) Revenue ($ in Bil.) Quarterly Annual ( Estimate) ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Dec BUY HOLD SELL Argus Recommendations Twelve Month Rating SELL HOLD BUY Five Year Rating SELL HOLD BUY Rating Weight Under Over Weight Weight Argus assigns a 12-month BUY, HOLD, or SELL rating to each stock under coverage. BUY-rated stocks are expected to outperform the market (the benchmark S&P 500 Index) on a risk-adjusted basis over the next year. HOLD-rated stocks are expected to perform in line with the market. SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. The distribution of ratings across Argus' entire company universe is: 48% Buy, 46% Hold, 6% Sell. Key Statistics Key Statistics pricing data reflects previous trading day's closing price. Other applicable data are trailing 12-months unless otherwise specified Overview Price $50.12 Target Price $ Week Price Range $46.01 to $56.95 Shares Outstanding 4.08 Billion Dividend $2.31 Overview Telecommunications Rating MARKET WEIGHT Total % of S&P 500 Cap. 2.00% Financial Strength Financial Strength Rating MEDIUM Debt/Capital Ratio 81.8% Return on Equity 71.2% Net Margin 10.4% Payout Ratio 0.60 Current Ratio 0.87 Revenue $ Billion After-Tax Income $13.13 Billion Valuation Current FY P/E Prior FY P/E Price/Sales 1.62 Price/Book 9.08 Book Value/Share $5.52 Capitalization $ Billion Forecasted Growth 1 Year EPS Growth Forecast -0.78% 5 Year EPS Growth Forecast 6.00% 1 Year Dividend Growth Forecast 1.76% Risk Beta 0.79 Institutional Ownership 64.48%

2 Report created Jan 25, 2017 Page 2 OF 6 Analyst's Notes...Continued below the peer average of RECENT DEVELOPMENTS Verizon reported fourth-quarter and full-year results on January 24. It was the first report for new CFO Matt Ellis, who shouldered the thankless tasks of reporting a 4Q16 EPS miss of $0.03 and announcing disappointing revenue and earnings guidance for Revenue is expected to be flat with 2016 on an organic basis, excluding the divestiture of wireline assets to Frontier and the AOL acquisition. This means that revenue is expected to decline about 1% on a reported basis. The company had been guiding for revenue growth in line with GDP growth in 2017, so the variance is fairly glaring. Management also projects flat EPS this year. Needless to say, Mr. Ellis's term as CFO has gotten off to a rocky start. VZ shares fell more than 4% on January 24. Fourth-quarter revenue fell 5.6% year-over-year to $32.3 billion. The organic revenue decline was driven by the continued migration of subscribers to unsubsidized rate plans, which generate lower revenue. The consolidated adjusted EBITDA margin widened by 240 basis points from the prior year to 32.2%. Adjusted EPS fell 3.4% to $0.86. Adjusted 4Q16 earnings excluded $0.27 per share in pension remeasurement and severance credits, compared to $0.48 per share for these costs in 4Q15, among other smaller items. For all of 2016, revenue fell 4.3% to $126 billion. Excluding the divestiture of wireline assets to Frontier in April 2016, adjusted organic revenue fell 2.4%. Adjusted EPS fell to $3.87 from $3.99 in 2015, a 3% decline. Verizon agreed to acquire Yahoo! Inc. for $4.83 billion in cash on July 25, However, in early August, a hacker revealed that more than 200 million Yahoo accounts had been hacked and that account information was for sale on the Deep Web. On September 22, Yahoo announced the results of its investigation, concluding that 500 million user accounts had indeed been hacked and that certain account information, including passwords, had been stolen by a 'state-sponsored actor.' In December, Yahoo announced that it had discovered that another 1 billion accounts had been hacked in August 2013, in what has been termed the biggest data breach in history. Verizon continues to dither on whether the hacking revelations have had a material impact on Yahoo's value. The parties continue to negotiate. The outcome of these talks could be a complete breakdown of the deal, a significant valuation haircut of perhaps $1 billion or more, or no effect at all (assuming that Yahoo! can prove to Verizon's satisfaction that the security breaches are immaterial to Yahoo's business). We see the third scenario as the least likely. Under the original deal, Verizon would have purchased Yahoo for 6.2-times 2016 EBITDA - fairly cheap given the rumors of a $6-$8 billion price that circulated at the start of the auction process. We note that Verizon would acquire only the operational business of Yahoo, which had been valued by the market at essentially zero. The purchase would not include Yahoo's Growth & Valuation Analysis GROWTH ANALYSIS ($ in Millions, except per share data) Revenue 112, , , , ,807 COGS 45,965 45,888 45,144 50,838 53,073 Gross Profit 66,162 71,136 76,804 77,407 78,734 SG&A 36,040 40,399 27,273 40,623 29,647 R&D Operating Income 13,622 14,187 32,906 20,399 33,042 Interest Expense 2,803 2,368 3,344 5,012 4,804 Pretax Income 11,234 10,984 30,512 14,985 28,337 Income Taxes ,834 4,677 9,870 Tax Rate (%) Net Income 2,651 1,141 13,492 9,897 17,970 Diluted Shares Outstanding 2,843 2,868 3,014 4,154 4,084 EPS Dividend GROWTH RATES (%) Revenue Operating Income Net Income , EPS , Dividend Sustainable Growth Rate VALUATION ANALYSIS Price: High $53.80 Price: Low $38.75 Price/Sales: High-Low P/E: High-Low Price/Cash Flow: High-Low Financial & Risk Analysis FINANCIAL STRENGTH Cash ($ in Millions) Working Capital ($ in Millions) Current Ratio LT Debt/Equity Ratio (%) Total Debt/Equity Ratio (%) RATIOS (%) Gross Profit Margin Operating Margin Net Margin Return On Assets Return On Equity RISK ANALYSIS Cash Cycle (days) Cash Flow/Cap Ex Oper. Income/Int. Exp. (ratio) Payout Ratio The data contained on this page of this report has been provided by Morningstar, Inc. ( 2017 Morningstar, Inc. All Rights Reserved). This data (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. This data is set forth herein for historical reference only and is not necessarily used in Argus analysis of the stock set forth on this page of this report or any other stock or other security. All earnings figures are in GAAP.

3 Report created Jan 25, 2017 Page 3 OF 6 Analyst's Notes...Continued investments in Alibaba Group Holdings, Yahoo! Japan, or other minority interests; or its convertible notes, cash, and noncore patents (called the 'Excalibur' portfolio). The assets not acquired by Verizon will be held in a newly formed publicly traded investment company. Yahoo CEO Marissa Meyer will, at least initially, move to Verizon with the operating business. The transaction requires the approval of Yahoo shareholders and the usual regulatory approvals. The break-up fee is 3% of the purchase price, or $145 million. This fee will be paid by Yahoo to Verizon if Yahoo accepts a competing proposal. When Yahoo reported its results on January 23, it said that it expected to complete the deal in the second rather than the first quarter. Yahoo! fits in with Verizon's efforts to build a base of content for its wireless go90 video platform, as does last year's AOL acquisition. Yahoo! has over 1 billion monthly active users and 600 mobile monthly active users. It remains a top provider with popular content applications in news, finance, and sports. Verizon completed the sale of its local consumer wireline assets in California, Florida, and Texas to Frontier Communications on April 1, The sale was for $10.54 billion or approximately $7.5 billion net of income taxes, including $9.9 billion in cash and Frontier's assumption of $600 million in debt. Verizon used the proceeds to pay down debt; it completed tender offers and early redemptions on about $10.7 billion of outstanding debt in early April The wireline operations sold to Frontier consist of 3.7 million voice connections, 2.2 million high-speed data customers, 1.6 million FiOS internet customers, and 1.2 million FiOS video customers. With the divestiture, Verizon has consolidated all of its wireline operations in the Northeast U.S. The deal does not include any Wireless or Verizon Enterprise Solutions (business) assets. The deal was originally announced on February 5, 2015, but required various federal and state regulatory approvals prior to closing. On February 22, 2016, Verizon agreed to purchase XO Communication's optical fiber-based internet protocol and ethernet network assets for about $1.8 billion. The acquisition will help bolster Verizon's services for enterprise and wholesale customers and enable it to continue to 'densify' its wireless cell network to both enhance 4G LTE coverage and provide the basics for an eventual 5G wireless rollout. Fiber-based networks form the backbone of wireless networks through connecting signals from cell towers to terrestrial telecom networks. Verizon estimates a net present value of operational synergies of more than $1.5 billion. In a separate transaction, Verizon will lease available XO wireless spectrum with an option to buy that spectrum by the end of The XO deal is subject to the usual regulatory approvals. Verizon received FCC approval of the XO wireless spectrum lease on July 25. It expects to complete the acquisition in early EARNINGS & GROWTH ANALYSIS We are lowering our adjusted 2017 EPS estimate to $3.84 from $4.04 and establishing a 2018 forecast of $3.95. We are also lowering our long-term earnings growth rate forecast to 4% from Peer & Industry Analysis The graphics in this section are designed to allow investors to compare VZ versus its industry peers, the broader sector, and the market as a whole, as defined by the Argus Universe of Coverage. The scatterplot shows how VZ stacks up versus its peers on two key characteristics: long-term growth and value. In general, companies in the lower left-hand corner are more value-oriented, while those in the upper right-hand corner are more growth-oriented. The table builds on the scatterplot by displaying more financial information. The bar charts on the right take the analysis two steps further, by broadening the comparison groups into the sector level and the market as a whole. This tool is designed to help investors understand how VZ might fit into or modify a diversified portfolio. P/E 10 0 WIN Value 5-yr Growth Rate(%) CTL Growth 5-yr Net 1-yr EPS Cap Growth Current Margin Growth Argus Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating T AT&T Inc 253, BUY VZ Verizon Communications Inc 204, BUY CTL CenturyLink Inc 17, HOLD WIN Windstream Holdings Inc HOLD Peer Average 119, T VZ P/E Price/Sales Price/Book PEG 5 Year Growth Debt/Capital

4 Report created Jan 25, 2017 Page 4 OF 6 Analyst's Notes...Continued 6%. Verizon expects revenue trends to improve in 2017, though we do not expect this improvement to actually represent positive growth. Verizon continues to pursue its 'three-tier' strategy. The foundation of the strategy is to protect and grow the company's position as the market leader in network connectivity with the goal of boosting profitability and financial flexibility. According to analysis by Root Metrics and other third-party industry trackers, Verizon has the best wireless network in the U.S. The second tier of the strategy focuses on the development of new platforms in digital video and the internet of things (IoT) - as exemplified by the Yahoo! deal; 2015's AOL acquisition; and the October 2015 launch of ThingSpace, an IoT developer platform. The third tier focuses on the development of applications and content that are supported by the first two tiers and that generate incremental revenue opportunities. The best examples of the third tier are the 2015 launch of the go90 mobile video application, and Hum, an after-market connected-vehicle service. This three-tier strategy should increase subscriber data usage and drive revenue growth as the company 'densifies' its network with LTE advanced service, lays the groundwork for the next network data speed upgrade (called 5G), and diversifies revenue sources by adding digital video advertising. Although Verizon spent $10.4 billion to acquire new spectrum in the January 2015 FCC auction, it is also participating in the ongoing 600 MHz FCC auction. Verizon continues to position itself as the premium-priced 'Tiffany' network in the face of increased competition from a rejuvenated T-Mobile and extreme discounts from Sprint. In the last year, Verizon has both increased prices modestly and provided a number of money-saving services (like safety mode and data rollover) as well as promotions. However, the biggest change came in early January, when Verizon ended its two-year contract subsidy model for current subscribers. It had ended that model for new subscribers in We expect the rest of Verizon's subscriber base to rapidly move to lower-cost/lower-revenue equipment installment plans. Verizon continues to look for 'profitable subscriber growth' rather than trying to follow T-Mobile and Sprint in a downward spiral of price competition through cut-rate offers. At the same time, Verizon is fighting to protect its high-value customer base while letting go of lower-value feature phone and prepaid customers. We can see the outcome of this strategy in Verizon's wireless operating metrics. The company added 591,000 net postpaid subscribers in the fourth quarter, a huge falloff from the 1.5 million net adds in 4Q15. Verizon's postpaid net adds included 167,000 higher-value phone customers in 4Q, though tablet net adds fell by almost 600,000 as customers rolled off following last year's special promotions. Verizon lost 9,000 prepaid subscribers. One primary goal for Verizon has been to defend its industry-leading margins. In 2016, the Wireless EBITDA-to-revenue margin expanded by 180 basis points from the prior year to 35%. In 4Q16, Verizon's retail postpaid churn rose by fourteen basis points year-over-year, to 1.10%. We think that Verizon is again likely to be the leader in churn. Management noted that 'phone-only churn' has been steady at 0.90% over the last seven quarters. This may be significant given that T-Mobile has made much of its ability to steal customers from other carriers, including Verizon. Meanwhile, on the wireline side, fourth-quarter segment revenue fell 3.1% year-over-year to $7.8 billion. Switched access lines again fell 15%. In Wireline, there are two different stories: consumer revenue is fairly stable, fueled by FiOS, with a minor increase of 0.2% in 4Q16; meanwhile, Enterprise, Small Business, and Wholesale revenue declined 4.5%, 3.3%, and 7.5%, respectively, reflecting the continued falloff in legacy access and long-distance services, competitive pricing pressures for newer IP-based services, and tepid macroeconomic growth. However, we note that the segment EBITDA margin expanded by 430 basis points from the prior year, to 24.1, driven by a labor force reduction under new union agreements and continued strong cost controls. The drive for Wireline cost efficiency has been a long-term focus at Verizon; we expect it to be pursued even more intensely following the divestiture of the California/Florida/Texas assets to Frontier and the settlement of the Wireline strike. Management expects the new union contract negotiated in the wake of the strike to generate total cash savings of $500 million in In October 2015, Verizon launched its go90 mobile video service. While wireless mobile video has been around for a while, it has not yet broken through to mass adoption. go90 is a free mobile application with both professional, short-form, and web based content aimed squarely at millennials, a population cohort that is becoming an ever more important in terms of its spending growth. (Management, using all the right buzzwords, terms go90 a 'social entertainment' platform.) Verizon has partnered with DreamWorks Animation and its web-video subsidiary, Awesomeness TV, to produce content for go90. Verizon's NFL deal also supplies content for the new service. It is also likely that AOL and Yahoo! (if the Yahoo deal is completed) will be heavily involved with go90. While go90 is free to consumers and supported by advertising, the key for Verizon will be customer adoption. While go90 is being offered to Verizon Wireless subscribers, it is not necessary to be a subscriber to get the service. Verizon is counting on wireless video to become a driver of data usage over the network, with subscribers realizing the value of paying for larger data bundles that will be required for wireless video. Subscribers taking larger data bundles should drive growth in average revenue per account (ARPA), a key performance indicator. While the prospects for go90 are uncertain, we think the service is a step forward for Verizon and could become a differentiator. No Verizon competitors offer such a service, and AT&T is probably the only one of the other three national carriers that has the ability to become a close follower. Of course, much depends on subscriber acceptance of the new service and on Verizon's ability to sign up content partners that will drive usage. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Verizon is Medium. Total debt was $108.1 billion at the end of 2016, down from $109.7 billion at the end of Verizon completed tender offers and early redemptions on about $10.7 billion of outstanding debt in early April 2016 using the proceeds from the Frontier transaction. Verizon levered up to complete the Vodafone transaction in February 2014, but management has pledged to return to a pre-vodafone credit rating of A- by Adjusted EBITDA covered interest expense by a factor of 10.1 in 2016, down from 10.9 in Adjusted trailing 12-month free cash flow fell almost 50% to about $10 billion in Adjusted free cash flow adds $5 billion from asset-backed long-term borrowings, which are included in Financing cash flows. Verizon's credit ratings are BBB+ from S&P and Baa1 from Moody's - still solidly investment-grade -

5 Analyst's Notes...Continued and outlooks are stable. Verizon's quarterly dividend is $ per share, or $2.31 annualized, for a yield of about 4.4%. We are lowering our 2017 dividend estimate to $2.31 from $2.34 and establishing a 2018 forecast of $2.34. The five-year CAGR for the dividend is 3%, reflecting the monetization of assets such as cell towers. However, Verizon used almost all of its adjusted free cash flow to pay dividends in 2016, up drastically from the normal 40%-60% range. Verizon did not buy back shares in 2016, though it repurchased $5.1 billion of its stock in We expect excess cash flow to be directed toward debt reduction and the possible acquisition of Yahoo! RISKS Capex has leveled off at about 14% of revenue. Management expects capex in a range of 16.8-$17.5 billion in 2017, about flat with the $17.1 billion in 2016 and consistent with recent years. We think that Verizon will continue to shift capex spending from Wireline to Wireless as it does not plan to build out new FiOS territories, and as its copper-to-fiber network migration tails off on the wireline side. Telecom companies are highly susceptible to disruptive technological change. Verizon has been a technology leader and this leadership continued with its aggressive 4G LTE and XLTE network rollout. In addition, it expects to be the first U.S. major carrier to deploy 5G on its network, though we think this will probably not happen until perhaps the end of 2017 or 2018 and only as a 'fixed wireless' broadband solution. Verizon's businesses are also highly regulated and dependent on a benign regulatory environment. We note that the wireless telecom sector, despite its rapid growth, is also at full penetration in the U.S., highly competitive, and that rates continue to fall. COMPANY DESCRIPTION Verizon is a leader in the telecommunications industry. The company was created in July 2000 when Bell Atlantic and GTE merged. VALUATION Verizon shares are up 11% in the last year on a total-return basis, compared to a 22% return for the S&P 500. Verizon's lagging enterprise value/ebitda ratio of 7.2 is above the midpoint of the five-year average range of The forward enterprise value/ebitda multiple of 6.7 is 1% below the peer average, below the average premium of 5% over the past two years. The projected 2017 P/E of 13.1 is also well below the peer average of We are maintaining our BUY rating on Verizon to a target price of $60. On January 24, BUY-rated VZ closed at $50.12, down $2.29. NYSE: VZ Report created Jan 25, 2017 Page 5 OF 6

6 METHODOLOGY & DISCLAIMERS Report created Jan 25, 2017 Page 6 OF 6 About Argus Argus Research, founded by Economist Harold Dorsey in 1934, has built a top-down, fundamental system that is used by Argus analysts. This six-point system includes Industry Analysis, Growth Analysis, Financial Strength Analysis, Management Assessment, Risk Analysis and Valuation Analysis. Utilizing forecasts from Argus Economist, the Industry Analysis identifies industries expected to perform well over the next one-to-two years. The Growth Analysis generates proprietary estimates for companies under coverage. In the Financial Strength Analysis, analysts study ratios to understand profitability, liquidity and capital structure. During the Management Assessment, analysts meet with and familiarize themselves with the processes of corporate management teams. Quantitative trends and qualitative threats are assessed under the Risk Analysis. And finally, Argus Valuation Analysis model integrates a historical ratio matrix, discounted cash flow modeling, and peer comparison. THE ARGUS RESEARCH RATING SYSTEM Argus uses three ratings for stocks: BUY, HOLD, and SELL. Stocks are rated relative to a benchmark, the S&P 500. A BUY-rated stock is expected to outperform the S&P 500 on a risk-adjusted basis over a 12-month period. To make this determination, Argus Analysts set target prices, use beta as the measure of risk, and compare expected risk-adjusted stock returns to the S&P 500 forecasts set by the Argus Strategist. A HOLD-rated stock is expected to perform in line with the S&P 500. A SELL-rated stock is expected to underperform the S&P 500. Argus Research Disclaimer Argus Research is an independent investment research provider and is not a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of Argus Group Inc. The information contained in this research report is produced and copyrighted by Argus, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research since Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Morningstar Disclaimer 2017 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.