BUY HOLD SELL A+ A A- B+ B B- C+ C C- D+ D D- E+ E E- F Annual Dividend Rate BUSINESS DESCRIPTION Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. STOCK PERFORMANCE (%) 3 Mo. 1 Yr. 3 Yr (Ann) Price Change 9.13-1.87 1.22 GROWTH (%) Last Qtr 12 Mo. 3 Yr CAGR Revenues 2.52-2.72-0.14 Net Income 0.00 13.57-2.00 EPS 0.00 13.37-6.75 RETURN ON EQUITY (%) Ind Avg S&P 500 Q3 2017 59.32 27.73 13.41 Q3 2016 68.53 33.35 11.79 Q3 2015 78.07 41.51 12.91 P/E COMPARISON BUY Sector: Telecom Sub-Industry: Integrated Telecommunication Services Source: S&P BUY RATING SINCE 08/09/2017 TARGET PRICE $58.24 Weekly Price: (US$) SMA (50) SMA (100) 1 Year 2 Years 2016 2017 COMPUSTAT for Price and Volume, TheStreet Ratings, Inc. for Rating History TARGET PRICE $58.24 Rating History BUY HOLD BUY Volume in Millions RECOMMENDATION We rate () a BUY. This is driven by several positive factors, which we believe should have a greater impact than any nesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, good cash flow from operations, expanding profit margins and notable return on equity. We feel its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated. 60 58 55 53 50 48 45 43 200 100 0 12.93 EPS ANALYSIS¹ ($) 19.91 Ind Avg 25.35 S&P 500 HIGHLIGHTS 's revenue growth has slightly outpaced the industry average of 1.2%. Since the same quarter one year prior, revenues slightly increased by 2.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displaying stagnant earnings per share. Net operating cash flow has significantly increased by 52.17% to $7,303.00 million when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 15.78%. Q1 1.02 Q2 1.04 Q3 0.99 2015 Q4 1.32 Q1 1.06 Q2 0.17 Q3 0.89 2016 NA = not available NM = not meaningful Q4 1.10 Q1 0.84 Q2 1.07 Q3 0.89 2017 1 Compustat fiscal year convention is used for all fundamental data items. The gross profit margin for is rather high; currently it is at 60.26%. Regardless of 's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, 's net profit margin of 11.41% compares favorably to the industry average. reported flat earnings per share in the most recent quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, reported lower earnings of $3.22 versus $4.37 in the prior year. This year, the market expects an improvement in earnings ($3.77 versus $3.22). The net income growth from the same quarter one year ago has exceeded that of the Diversified Telecommunication Services industry average, but is less than that of the S&P 500. The net income has remained constant at $3,620.00 million when compared to the same quarter one year ago. Report Date: PAGE 1
PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN* Revenue Growth (TTM) -5% 10% BT UNFAVORABLE T 27.5% TEF CHU VIV CHT EBITDA Margin (TTM) TU TI BCE FAVORABLE TLK 52.5% Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $16.2 Billion and $222 Billion. Companies with NA or NM values do not appear. *EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization. REVENUE GROWTH AND EARNINGS YIELD Revenue Growth (TTM) -5% 10% UNFAVORABLE CHU 1% Earnings Yield (TTM) TLK CHT TEF FAVORABLE BT TU T VIV BCE TI Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between -4.2% and 8.2%. Companies with NA or NM values do not appear. 8% INDUSTRY ANALYSIS The US diversified telecommunications services industry provides communications and high-density data transmission through high bandwidth/fiber-optic cable networks. The industry is classified into two sub-categories, alternative carriers and integrated telecommunication services. There are three parallel markets, terrestrial networks, cellular networks, and satellite networks, which include major players such as AT&T (T), Verizon Communications (), and Centurylink (CTL). The industry is mature, cyclical, capital intensive, and undergoing consolidation and globalization. The recent M&A trend, ongoing regulatory liberalization, and privatization have fueled competition in local telephone services markets and expansion into domestic and cross-border markets. The industry has high entry barriers due to the dominance of well-established players, brand identities, high levels of automation, and distribution challenges. Growth is driven by technological advances and demand for integrated high bandwidth data transmission. Most companies are seeking new market segments, such as mobile communications, digital data transmission, and value added services. The changing pace of technology implementation and convergence of cable network technologies through bundling have redefined the competitive landscape. However, the recent launch of cable telephony, VoIP, and improved wireless and cellular technologies pose a threat to traditional wired telecommunication services. The US Federal Government, through the Communications Act of 1934, established the Federal Communications Commission to regulate and retain jurisdiction over use of the radio spectrum, interstate telecommunications, and international communication that originates or terminates in the US. Deregulation has occurred since the break-up of AT&T in 1982 and rendered the market more competitive. The industry is regulated by the US Telecommunications Act of 1996 and 2005, which aims to abolish cross-market barriers and prohibit dominant players from operating within one communications industry. PEER GROUP: Diversified Telecommunication Services Recent Market Price/ Net Sales Net Income Ticker Company Name Price ($) Cap ($M) Earnings TTM ($M) TTM ($M) VERIZON COMMUNICATIONS I 50.42 205,685 12.93 124,419.00 15,927.00 TEF TELEFONICA SA 10.08 52,337 19.76 57,739.89 2,880.51 BCE BCE INC 48.21 43,410 14.93 22,463.00 2,995.00 BT BT GROUP PLC 17.75 35,208 17.93 30,686.71 1,974.35 CHU CHINA UNICOM (HONG KONG) LTD 13.66 32,712 68.30 39,358.99 461.21 TLK TELEKOMUNIKASI INDONESIA 30.89 31,137 18.72 9,202.86 1,633.08 CHT CHUNGHWA TELECOM LTD 34.80 26,996 22.60 7,102.86 1,198.95 TU TELUS CORP 37.78 22,461 17.74 13,087.00 1,260.00 T AT&T INC 36.17 222,048 17.47 160,701.00 12,850.00 VIV TELEFONICA BRASIL SA 15.21 17,025 12.78 13,481.62 1,347.95 TI TELECOM ITALIA SPA 8.73 16,210 13.23 22,266.87 1,391.81 The peer group comparison is based on Major Integrated Telecommunication Services companies of comparable size. Report Date: PAGE 2
Annual Dividend Rate COMPANY DESCRIPTION Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Its Wireless segment offers wireless voice and data services; Internet access on various smart and basic phones, notebook computers, and tablets; and multimedia access, business-focused, location-based, global data, home phone handsets, and high-speed Internet services, as well as network access and value added services to support wireless connections for the Internet of Things (IoT). This segment also provides IoT services that support devices used in fleet management and telematics, energy, agricultural technology, and smart community markets; and wireless devices, such as smartphones and basic phones, tablets, and other Internet access devices. As of December 31, 2016, it had 114.2 million retail connections. The company's Wireline segment offers high-speed Internet, Fios Internet, and Fios video services; voice services, such as local exchange, regional and long distance calling, and voice messaging services, as well as Voice over Internet protocol services; network products and solutions comprising private Internet protocol (IP), public Internet, Ethernet, and optical networking services; IT infrastructure services that include collocation and managed hosting services; cloud services, which comprise computing, storage, backup, recovery, and application platforms; and business communications services. This segment also provides data security, voice and data, cloud and IT, business communications, IoT, and mobility services; and data, voice, local dial tone, and broadband services primarily to local, long distance, wireless, and other carriers. The company was formerly known as Bell Atlantic Corporation and changed its name to Verizon Communications Inc. in June 2000. Verizon Communications Inc. was founded in 1983 and is headquartered in New York City, New York. 1095 Avenue of the Americas New York, NY 10036 USA Phone: 212-395-1000 http://www.verizon.com STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and nesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stock s valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE Growth 2.5 out of 5 stars Measures the growth of both the company's income statement and cash flow. On this factor, has a growth score better than 40% of the stocks we rate. Total Return 2.0 out of 5 stars Measures the historical price movement of the stock. The stock performance of this company has beaten 30% of the companies we cover. Efficiency 4.5 out of 5 stars Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 80% of the companies we review. Price volatility 2.5 out of 5 stars Measures the volatility of the company's stock price historically. The stock is less volatile than 40% of the stocks we monitor. Solvency 5.0 out of 5 stars Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income 5.0 out of 5 stars Measures dividend yield and payouts to shareholders. The company's dividend is higher than 90% of the companies we track. THESTREET RATINGS RESEARCH METHODOLOGY TheStreet Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks. Report Date: PAGE 3
Consensus EPS Estimates² ($) IBES consensus estimates are provided by Thomson Financial 0.88 Q4 FY17 3.77 E 2017(E) 3.85 E 2018(E) INCOME STATEMENT Net Sales ($mil) 31,717.00 30,937.00 EBITDA ($mil) 11,646.00 10,482.00 EBIT ($mil) 7,374.00 6,540.00 Net Income ($mil) 3,620.00 3,620.00 FINANCIAL ANALYSIS 's gross profit margin for the third quarter of its fiscal year 2017 is essentially unchanged when compared to the same period a year ago. While sales increased, net income has remained unchanged. has liquidity. Currently, the Quick Ratio is 0.90 which shows a lack of ability to cover short-term cash needs. The company's liquidity has increased from the same period last year, indicating improving cash flow. At the same time, stockholders' equity ("net worth") has greatly increased by 31.22% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is in a position in which financial difficulties could develop in the future. STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. To learn more visit www.thestreetratings.com. BALANCE SHEET Cash & Equiv. ($mil) 4,487.00 6,441.00 Total Assets ($mil) 254,682.00 239,498.00 Total Debt ($mil) 117,497.00 106,591.00 Equity ($mil) 26,848.00 20,460.00 PROFITABILITY Gross Profit Margin 60.26% 60.47% EBITDA Margin 36.71% 33.88% Operating Margin 23.25% 21.14% Sales Turnover 0.49 0.53 Return on Assets 6.25% 5.85% Return on Equity 59.32% 68.53% DEBT Current Ratio 1.07 0.85 Debt/Capital 0.81 0.84 Interest Expense 1,338.00 1,214.00 Interest Coverage 5.51 5.39 SHARE DATA Shares outstanding (mil) 4,079 4,077 Div / share 0.58 EPS 0.89 0.89 Book value / share 6.58 5.02 Institutional Own % NA NA Avg Daily Volume 16,473,374 14,274,579 2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates. Report Date: PAGE 4
RATINGS HISTORY Our rating for has not changed since 8/9/2017. As of 12/7/2017, the stock was trading at a price of which is 8.1% below its 52-week high of $54.83 and 17.8% above its 52-week low of $42.80. 2 Year Chart BUY: $46.06 2016 HOLD: $47.36 BUY: $48.22 $60 $55 $50 $45 MOST RECENT RATINGS CHANGES Date Price Action From To 8/9/17 $48.22 Upgrade Hold Buy 4/26/17 $47.36 Downgrade Buy Hold 12/7/15 $46.06 No Change Buy Buy Price reflects the closing price as of the date listed, if available RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET RATINGS (as of 12/7/2017) 45.41% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 30.81% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 23.78% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns. TheStreet Ratings 14 Wall Street, 15th Floor New York, NY 10005 www.thestreet.com Research Contact: 212-321-5381 Sales Contact: 866-321-8726 VALUATION BUY. This stock's P/E ratio indicates a discount compared to an average of 19.91 for the Diversified Telecommunication Services industry and a significant discount compared to the S&P 500 average of 25.35. For additional comparison, its price-to-book ratio of 7.66 indicates a significant premium versus the S&P 500 average of 3.22 and a significant premium versus the industry average of 3.69. The price-to-sales ratio is well below both the S&P 500 average and the industry average, indicating a discount. The valuation analysis reveals that, seems to be trading at a discount to investment alternatives within the industry. Price/Earnings 12.93 Peers 19.91 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. is trading at a significant discount to its peers. Price/Projected Earnings 13.10 Peers 15.19 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. is trading at a discount to its peers. Price/Book 7.66 Peers 3.69 Premium. A higher price-to-book ratio makes a stock less attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. is trading at a significant premium to its peers. Price/Sales 1.65 Peers 11.34 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. is trading at a significant discount to its industry on this measurement. DISCLAIMER: Price/CashFlow 9.22 Peers 7.37 Premium. The P/CF ratio, a stock s price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. is trading at a significant premium to its peers. Price to Earnings/Growth 0.74 Peers 0.56 Premium. The PEG ratio is the stock s P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. trades at a significant premium to its peers. Earnings Growth lower higher 13.37 Peers 75.16 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth lower higher -2.72 Peers 1.64 Lower. A sales growth rate that trails the industry implies that a company is losing market share. significantly trails its peers on the basis of sales growth The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet Ratings cannot guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poor's, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet Ratings is a division of TheStreet, Inc., which is a publisher. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet Ratings of any particular security or trading strategy or a determination by TheStreet Ratings that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person. Your use of this report is governed by TheStreet, Inc.'s Terms of Use found at http://www.thestreet.com/static/about/terms-of-use.html. Report Date: PAGE 5