Verizon (VZ) is one of the largest wireless carriers in the country; its network covers ~300 million people and 98% of the U.S, as it continues its rollout of 5G service, notes Ben Reynolds, dividend specialist and editor of Sure Retirement.

On April 22, Verizon announced first-quarter results. Revenue grew 2.1% to $33.6 billion while adjusted earnings-per-share (EPS) of $1.35 compared favorably to $1.31 in the prior year. Both results were in-line with what the market had anticipated.

The company had a net loss of 36,000 wireless postpaid phone subscribers, which is the ninth consecutive year where Verizon lost postpaid subscribers in the first quarter. Wireless revenue improved 9.5% to $18.3 billion while total retail connections topped 143 million.

Revenue for the consumer segment grew almost 11% due to the addition of TracFone, higher equipment sales, and wireless revenue growth. Average revenue per account was up 2.6%.

Business revenue fell 0.9% to $7.7 billion as gains in wireless services were offset by weakness in the legacy wireline business. Revenue and adjusted earnings-per-share are now expected to be at the low end of previous guidance.

Competitive Advantages & Recession Performance

One of Verizon’s key competitive advantages is that it is often considered the best wireless carrier in the U.S. This is evidenced by the company’s wireless net additions and very low churn rate.

This reliable service allows Verizon to maintain its customer base as well as give the company an opportunity to move customers to higher-priced plans. Verizon is also in the early stages of rolling out 5G service. Another advantage for Verizon is the stock’s ability to withstand a downturn in the market.

During the Great Recession Verizon posted earnings-per-share of $2.54, $2.40, $2.21, $2.15, and $2.32 during the 2008 through 2012 stretch. Meanwhile, the dividend continued increasing. Verizon remained highly profitable in 2020 and raised its dividend, even during the coronavirus pandemic.

Growth Prospects, Valuation & Catalyst

Verizon grew its earnings-per-share by an annual compound growth rate of 9.8% during the 2012 through 2021 period. This improvement came from an increasing net profit margin, as the top line has advanced at a slow rate and the share count remains stable.

Moving forward we are projecting 4% annual earnings-per-share growth through 2027 to reflect slowing growth over the recent term. We expect Verizon to generate adjusted earnings-per-share of $5.44 for 2022.

Based on this, the stock is presently trading with a price-to-earnings ratio (P/E) of 9.5. Our fair value estimate P/E remains at 13.0, which means that multiple expansion could add 6.6% to annual returns. When combined with the 4.0% expected EPS growth rate and the 5.0% dividend yield, there is an implied potential for annual returns of 14.1% over the next five years.

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