Verizon y Analysis

Verizon Communications Anna Bukowska Lisa Derrickson Ari Harper Magdalena Rybka Sunil Vallurupalli. Corporate Profile       Headquarters: New York 2008 Revenues: $97.4 Billion 2008 Operating Income: $16.9 Billion Customers Nationwide: 86 Million Employees: 237,000 Serving: 140+ countries Corporate History      Formed June 30, 2002 Product of a merger between Bell Atlantic Corp. and GTE Corp, Merger valued at more than $52 billion. Acquired MCI in 2006. Bell Atlantic Corp. • One of 7 baby bells of AT&T dating back to the Bell System. • Became its own company in 1984. • 1999 revenues: $33 billion. • 22 million household customers, 2 million business customers, 7.7 million mobile customers. GTE Corp. • Founded in 1913 in Wisconsin by John F. O'Connell, Sigurd L. Odegard, and John A. Pratt. • 1999 revenues: $29 billion. • 35 million access lines, 7.1 million wireless customers in the U.S., 6.7 million customers outside of U.S. Business Units  Verizon wireless • Domestic Wireless o 12.3% growth in revenues to $49,332.  Wireline • 1.3% decrease in revenues overall in the past year  Wireline Telecom 2008 revenues: $29,912  Wireline Business: 2008 revenues: $21,126 Competition  Verizon 2008 Revenues = $ 97,354 Million • AT&T 2008 Revenues = $124,028 Million • Sprint 2008 Revenues = $35,635 Million • QWEST 2008 Revenues = $13,475 Million Corporate Profile Corporate Profile Activity Analysis(2008) Verizon Inventory Turnover Avg. No. Days Inventory in Stock Receivables Turnover Avg. No. of Days Receivables Outstanding Fixed Asset Turnover Asset Turnover Payables Turnover 20.37 AT&T 50.37 Sprint 20.39 17.92 8.28 7.25 7.70 17.90 9.43 44.09 1.13 0.50 6.16 47.43 1.27 0.46 4.49 38.70 1.45 0.58 4.39 Liquidity Analysis(2008) Verizon Current Ratio Quick Ratio Cash Ratio Cash Flow From Operations Ratio 1.01 0.85 0.40 AT&T 0.53 0.42 0.04 Sprint 1.33 1.13 0.59 1.03 0.80 0.98 Long Term Debt Solvency Ratios Verizon Debt/Equity Times Interest Earned Debt to Total Capital Leverage 1.24 AT&T 0.778 Sprint 1.102 5.47 0.71 -1.98 0.55 4.85 0.44 2.75 0.52 2.97 Profitability Ratios(2008) Verizon Gross Margin Operating Margin 60.02% 18.50% AT&T 59.77% 18.59% Sprint 58.06% -2.34% Profit Margin ROA ROE 6.60% 5.11% 13.93% 10.37% 0.88% 12.16% -7.85% -4.40% -13.40% Company Performance Company Performance Years Ended December 31, Cash Flows Provided By (Used In) Operating Activities: Continuing operations Discontinued operations Investing Activities: $ 2008 2007 26,62 0 – (31,57 ) 9 – 13,58 8 – $ 26,30 9 (570 ) Continuing operations Discontinued operations Financing activities: Continuing operations Discontinued operations Increase (Decrease) In Cash and Cash Equivalents (16,86 ) 5 757 (11,69 ) 7 – $ (2,066 ) $ 8,629 Q1 2009 Financial Highlights  1Q 2009 EPS 57 cents and 61 cents in adjusted EPS (nonGAAP) Q1 2009 EPS 58 cents and 63 cents respectively.  $6.4 billion in cash flows from operations, up $1.0 billion, or 19.1 percent, year over year.  Capital expenditures totaled $3.7 billion; free cash flow totaled $2.7 billion, up $1.5 billion. Earnings and Cash Flows Revenue and Profitability Setting Itself Apart  Invested more than $50 billion to maintain, upgrade, and expand its technology infrastructure • Expanded wireless service to rural markets & has coverage over nearly the entire U.S.population • Building an all-digital fiber-optic network; the most advanced network being deployed in America today Setting Itself Apart cont.  Has 2 significant initiatives: • 1) The Open Development Initiative: ―any apps, any device‖ • 2) LTE (Long-Term Evolution): faster and more convenient wireless broadband experience  Quality of network Competitor Comparison Consolidated Revenues(2008) Wireless Customers ARPU 4 G Launch Wireline Network Smartphone monopoly Debt AT&T 124 B(Up 4%) 78.2M $59.21 in 2012 FTTN Iphone 5.6B Verizon 97.4B 86.6M $50.74 in 2010 FiOS Blackberry 9500 13.5B in 2009 Common Size statement Unaudited 3/31/09 $ 3,979 372 11,989 2,195 3,343 21,878 221,500 131,645 89,855 3,574 70,873 22,531 7,299 10,841 226,851 1.75 0.16 5.28 0.97 1.47 9.64 97.64 58.03 39.61 1.58 31.24 9.93 3.22 0.00 4.78 100.00 $ 12/31/08 9,782 509 11,703 2,092 1,989 26,075 215,605 129,059 86,546 3,393 61,974 6,035 5,199 4,781 8,349 202,352 4.83 0.25 5.78 1.03 0.98 12.89 106.55 63.78 42.77 1.68 30.63 2.98 2.57 2.36 4.13 100.00 Current as s ets Cas h and cas h equivalents Short-term inves tm ents Accounts receivable, net Inventories Prepaid expens es and other Total current as s ets Plant, property and equipm ent Les s accum ulated depreciation Inves tm ents in uncons olidated bus ines s es Wireles s licens es Goodwill Other intangible as s ets , net Other inves tm ents Other as s ets Total Assets $ $ Liabilities and Equity Current liabilities Debt m aturing within one year Other Total current liabilities Long-term debt Em ployee benefit obligations Deferred incom e taxes Other liabilities Equity Com m on s tock Contributed capital Reinves ted earnings Accum ulated other com prehens ive los s Com m on s tock in treas ury, at cos t Deferred com pens ation - em ployee s tock owners hip plans and other Noncontrolling interes t Total equity Total Liabilities and Equity $ Accounts payable and accrued liabilities 13,459 14,403 7,207 35,069 55,674 32,149 16,998 6,407 297 40,108 19,588 (13,387) (4,837) 82 38,703 80,554 226,851 $ 5.93 6.35 3.18 15.46 24.54 14.17 7.49 2.82 0.00 0.00 0.13 17.68 8.63 (5.90) (2.13) 0.00 0.04 17.06 35.51 100.00 $ 4,993 13,814 7,099 25,906 46,959 32,512 11,769 6,301 297 40,291 19,250 (13,372) (4,839) 79 37,199 78,905 202,352 $ 2.47 6.83 3.51 12.80 23.21 16.07 5.82 3.11 0.00 0.00 0.15 19.91 9.51 (6.61) (2.39) 0.00 0.04 18.38 38.99 100.00 Common Size statement Operating Revenues Domestic Wireless Wireline Other Total Operating Revenues (1) 3/31/09 $ 15,122 11,567 (98) 26,591 3/31/08 56.87 43.50 -0.37 100.00 $ 11,669 12,026 (120) 23,575 49.50 51.01 (0.51) 100.00 0.00 0.00 Operating Expenses Cost of services and sales Selling, general & administrative expense Depreciation and amortization expense Total Operating Expenses Operating Income Operating income impact of divested operations Equity in earnings of unconsolidated businesses Other income and (expense), net Interest expense Income Before Provision for Income Taxes Provision for income taxes Net Income Before Special Items $ (1) 10,247 7,421 3,983 21,651 4,940 (1) 38.54 27.91 14.98 81.42 0.00 18.58 - 9,395 6,237 3,522 19,154 4,421 44 97 23 (459) 4,126 (978) $ 3,148 39.85 26.46 14.94 81.25 0.00 18.75 0.19 0.41 0.10 (1.95) 17.50 (4.15) 13.35 0.00 0.48 0.21 -2.70 16.57 -3.45 13.12 128 55 (717) 4,406 (917) 3,489 Rate Card For Wireless Plans Risks and Competition Increasing competition in Wireless Launch of better Prepaid services by all players Plans Reduce Capital Expenditure Iphone pull( 1.6 M Iphone’s activated in Q1 2009) Market Expectations for Q1 2009 EPS Quarter Revenue New Customers Wireless ARPU = 59 Cents = $26.3 Billion = 1 Million Wireless = 300,000 FiOS subscribers approx = ~$51 Stock Price $31 as on April 23rd, 10.9% decline since Jan 09. Q1 2009 Results EPS Quarter Revenue New Customers Wireless ARPU = = = = = 58 Cents $26.59 Billion 1.3 Million Wireless 299,000 FiOS subscribers $50.74( 20 cent reduction) Customer Churn Rate= 1.47% against 1.19% in 08 Debt Ratings For Verizon As of September 2008. Moody's Verizon Comm Verizon Comm - CP Verizon Wireless S&P Fitch A+(Above avg) F-1(Stable) NR A3(Good) A P-2(prime2) A-1 NR A *Verizon under review for downgrade by all 3 Z Score Working Capital Total Assets Retained Earnings EBIT Markt Value of Eqty Book value of Debt Sales $ (13,191) $ 226,851 19,588 5123 87332.34 69133 26,591 Co-Efficient Working Capital/Total Assets Retained Earnings/Total Assets EBIT/Total Assets Market Value of Equity/Book Value of Debt Sales/Total Assets Z Score -0.0581483 0.08634743 $ 0.02 1.26325112 0.11721791 1.2 1.4 3.3 0.6 1 -0.06977796 0.1208864 0.07452425 0.75795067 0.11721791 1.0008 Z Score >2.675 => Solvency!!!!! Insider Trading Sep tem ber 23 , 2008 64,41 2 S hares Strig l Dennis , COO and Pres ide nt Bu y 64,41 2 S hares at $31.0 5 for 2. 0 M N ovem ber 20 , 2008 K illi an John Pres ide nt Bu y 2500 shares for $2 6.50 w orth $66. 3 K N ovem ber 18 , 2008 K illi an John Pres ide nt Bu y 5000 shares for $27.9 0 w orth $139. 5 K F ebruar y 5, 200 9 L ynch R ichard CTO and EVP Bu y 2000 shares for $3 1.08 w orth $6 2.2 K Institutional Holders Cap ital Researc h G lob al I nv es to rs Barc lay s G lobal I nv es to rs N A (Ca lif ornia) S tate S tree t G lo bal A d viso rs Cap ital W orld Inv es to rs Va nguard Gr oup , I nc. F ide li ty Ma nage m ent & Researc h Barr o w, Ha nley, Mew hinn ey & S trauss, In c N orther n T rus t I nv es tm en ts 144.8 M 117.3M 11 2.2M 9 5.7M 9 1.0M 6 9.2M 40. 1M 3 7.9M 5.10% 4.13% 3.95% 3.37% 3.20% 2.44% 1.41% 1.33% Mutual Fund Holders A m er ica n A m er ica n A m er ica n A m er ica n A m er ica n Va nguard F unds Cap ital I ncom e Bu il de r F unds Incom e F und o f A m er ica F unds W as hingto n M utua l I nv es to rs F unds Inv es tm ent C om pa ny o f A m er ica F unds Cap ital W orld Gr ow th & Incom e 500 Index F und 61.6 M 45.6M 32.8M 32.0M 30.5M 26.9 M 2.17 1.61 1.16 1.13 1.07 0.95 % % % % % % 66.3B 51.5B 42.0B 48.3B 60.3B 66.2B Y ield Y ield Y ield Y ield Y ield Inde x Recent Developments All Cash merger of Verizon and Alltell paying 5.9 B for equity Acquired Rural Cellular Corporation for $738 M to its Common stock. Press Releases:04/17/2009 BASKING RIDGE, NJ — Verizon Wireless today released its initial set of technicalspecifications for devices that will run on its Long Term Evolution (LTE) fourth generation (4G) wireless network. The specifications are available for download at www.verizonwireless-opendevelopment.com. Lawsuits Little Rock, Ark.-based Windstream Windstream sued Verizon Wireless late Last week, accusing the wireless carrier of overcharging it $7 million for calls connected through its network. The lawsuit filed by Klausner Technologies, operated by Judah Klausner Over a patent infringement over Visual Voice mail. Press Release Apr 24 -- Verizon Communications to Report Earnings on April 27 Apr 24 -- San Bernardino County, California Residents Learn the 'Smarts' of Their Smartphone Apr 21 -- Verizon's Green Initiatives Recognized in Environmental Defense Fund's Innovations Review 2009 Verizon Stock Performance 5 Year Compared with S&P 500 Verizon Stock Performance 1 Year Compared with S&P 500 Verizon Stock Performance 2009 First Quarter Earnings exceeded analyst expectations by $.04 Wireless and Fiber Optic based services both experienced significant growth Strong results are an early indicator that heavy bet on Fiber Optic services may pay off Verizon Accounting Methods Verizon recognizes revenue from its monthly services as provided and equipment when installed Capital spending is concentrated in building FiOS infrastructure, and therefore remains on the balance sheet 90% of Unconsolidated businesses are equity investess Recommendations  Lower the level of capital expenditures • Complete homes passed for FiOS • Synergies from the consolidation of Wirelone networks • Network optimization and cost avoidance resulting from the acquisition of Alltel Recommendations cont.  Reduce force in areas that are not growing • Consolidate network organizations • Look for new technologies • Continually train forces to be more efficient  Drive leading performance throughout the Alltel properties • Improve penetration and drive free cash flow