NEW YORK Verizon Communications Inc. (NYSE, Nasdaq: VZ) finalized its $1 billion green bond offering on September 3, only days after its second green bond was fully allocated to renewable energy commitments.
What is the green bond of Verizon?
Verizon was the first U.S. telecommunications company to issue a green bond in February 2019. The initial selling raised about $1 billion in net profits, which will be spent entirely on renewable energy, energy efficiency, green buildings, biodiversity, and conservation in 2020. Verizon issued its second green bond in September 2020, which was completely committed to renewable energy expenditures in 2021. Verizon issued their third green bond in September 2021, which was completely committed to renewable energy expenditures in 2022.
What is Verizon’s debt situation?
Verizon Communications had US$150.6 billion in debt at the end of September 2021, up from US$115.6 billion a year earlier, as shown below. For further information, please click on the image. However, because it has a cash reserve of US$10.2 billion, it has a lower net debt of US$140.4 billion.
A Look At Verizon Communications’ Liabilities
When we look at the most recent balance sheet data, we can see that Verizon Communications has obligations of $41.4 billion due within the next 12 months and liabilities of $233.6 billion due after that. It has US$10.2 billion in cash and US$22.9 billion in receivables due in the next 12 months to offset these liabilities. As a result, its liabilities exceed its cash and (near-term) receivables by US$241.9 billion.
Given that this deficit is bigger than the company’s vast market value of US$219.2 billion, we believe that shareholders should keep a close eye on Verizon Communications’ debt levels, much like a parent watching their child learn to ride a bike for the first time.
If the company were compelled to pay down its liabilities by raising capital at the current share price, significantly heavy dilution would be required.
We calculate how easily a company’s earnings before interest and tax (EBIT) cover its interest expense and look at its net debt divided by its earnings before interest, tax, depreciation, and amortization (EBITDA) to determine its debt load relative to its earnings power (interest cover).
This method takes into account both the debt’s total amount and the interest rates paid on it.
Verizon Communications has a net debt to EBITDA ratio of 2.8, indicating that it employs a lot of leverage to increase profits.
On the bright side, its EBIT was 9.0 times interest expense, and its net debt to EBITDA ratio was 2.8, which was extremely high.
In the previous year, Verizon Communications’ EBIT increased by 9.8%.
While this may not exactly blow our minds, it is a positive in terms of debt.
The balance sheet, without a question, teaches us the most about debt.
But, in the end, the business’s future profitability will determine if Verizon Communications can improve its balance sheet over time.
So, if you’re curious about what the experts say, this free study on analyst profit estimates might be of interest.
Finally, a company requires free cash flow to pay down debt; accounting profits are insufficient. As a result, we constantly assess how much of that EBIT is converted into free cash flow. Verizon Communications generated free cash flow of only 12% of its EBIT over the last three years, which is extremely low. For us, a poor cash conversion rate raises concerns about our ability to pay off debt.
Our View
On the surface, Verizon Communications’ conversion of EBIT to free cash flow made us wary of the stock, and its total liabilities level was no more appealing than one vacant restaurant on the busiest night of the year. On the plus side, its interest cover is a positive sign and gives us reason to be optimistic. We believe that debt is making Verizon Communications stock a bit riskier, based on the balance sheet and all of these concerns. Some people enjoy taking risks, but we’re aware of the dangers, so we’d probably want to carry less debt. The balance sheet, without a question, teaches us the most about debt. However, every organization can, in the end, manage risks that lie outside of the balance sheet. For example, we’ve identified three warning indicators for Verizon Communications that you should be aware of, one of which makes us uneasy.
After all of that, if you’re looking for a fast-growing company with a strong balance sheet, go no further than our list of net cash growth stocks.
What is Verizon’s capital cost?
Verizon Communications’ weighted average cost of capital is 3.29 percent as of today (2022-02-17). The ROIC of Verizon Communications is 7.67 percent (calculated using TTM income statement data). Verizon Communications earns a better rate of return on investment than it costs the company to raise the necessary cash. It’s making a lot of money. A company’s worth will rise as growth increases if it expects to generate positive excess returns on additional investments in the future.
How much money does AT&T owe?
Li Lu, an external fund manager sponsored by Berkshire Hathaway’s Charlie Munger, says bluntly, “The largest investment risk is not price volatility, but whether you would suffer a permanent loss of capital.” As a result, it may seem self-evident that debt should be taken into account when determining the riskiness of any given stock, because too much debt might lead to a company’s demise. AT&T Inc. (NYSE:T), like many other firms, uses debt. Is this debt, however, a source of concern for shareholders?
Why Does Debt Bring Risk?
Debt becomes a major issue when a corporation can’t readily pay it off, either through raising capital or through its own cash flow. A firm can go bankrupt in the worst-case situation if it is unable to pay its creditors. However, a more usual (though still painful) scenario is that it needs to obtain new equity capital at a cheap cost, resulting in permanent shareholder dilution. Having said that, the most prevalent circumstance is where a corporation manages its debt relatively well – and to its own advantage. When assessing a company’s debt levels, the first step is to combine its cash and debt.
What Is AT&T’s Debt?
The figure below, which you can click to enlarge, indicates that AT&T had debt of US$181.0 billion in June 2021, up from US$168.7 billion a year earlier. However, because it has a cash reserve of US$11.9 billion, it has a lower net debt of US$169.0 billion.
How Healthy Is AT&T’s Balance Sheet?
According to AT&T’s most recent balance sheet, the company has US$82.1 billion in liabilities due within a year, with another US$282.7 billion due after that. It has US$11.9 billion in cash and US$20.1 billion in receivables due in the next 12 months to offset this. As a result, its liabilities exceed its cash and short-term receivables by US$332.9 billion.
Is Verizon attempting to purchase spectrum?
- The winners of a $81 billion auction for the license to utilize crucial airwaves that are perfect for 5G were announced by the Federal Communications Commission.
- Verizon and AT&T were the big winners. They’ll need these frequencies to develop 5G networks, which will be much quicker than existing wireless service.
- Verizon spent almost $45.5 billion on the airwaves through its Cellco Partnership. AT&T spent $23.4 billion through AT&T Spectrum Frontiers.
Verizon pays dividends in what months?
– Verizon Communications Inc.’s (NYSE, Nasdaq: VZ) Board of Directors today declared a quarterly dividend of 64 cents, which is unchanged from the prior quarter. Verizon shareholders who held their shares at the close of business on January 10, 2022 will receive a quarterly dividend on February 1, 2022.
Warren Buffett owns how much Verizon stock?
Surprisingly for Berkshire Hathaway, Buffett’s original ownership of 147 million shares in Verizon was so big that, at today’s valuation, the business is the investment vehicle’s seventh largest stock holding. Berkshire Hathaway now holds 158.8 million Verizon shares valued at $8.77 billion.
Surprisingly, Verizon isn’t the only 5G company in which Warren Buffett has put his money. Berkshire Hathaway owns 5.24 million shares in T-Mobile US, Inc. (TMUS), which is worth roughly $746 million at its current price, maybe lured by the revolutionary nature of the technology or just the strong cash flows that the sector generates.
Consolidated:
- EPS of $1.11, compared to $1.11 in the fourth quarter of 2020; adjusted EPS* of $1.31, excluding special items, compared to $1.21 in the fourth quarter of 2020, a rise of 8.3 percent year over year.
- Operating revenue was $34.1 billion in the fourth quarter of 2020, down 1.8 percent from the fourth quarter of 2020. Operating revenue increased 4.8 percent year over year after adjusting for the sale of Verizon Media on September 1.
- Net income of $4.7 billion, up 0.4 percent from the fourth quarter of 2020, and adjusted EBITDA* of $11.8 billion, essentially unchanged from the fourth quarter of 2020.
Total Wireless:
- Total cellular service revenue was $17.8 billion, up 6.5 percent year over year, thanks to greater ARPA (average revenue per account), volume growth, and the contribution from the TracFone Wireless purchase, which closed on November 23.
- Retail postpaid phone churn was 0.81 percent, and total retail postpaid churn was 1.01 percent.
- A total of 142.8 million retail connections were added as a consequence of 1,058,000 retail postpaid net additions, including 558,000 phone net additions.
Total Broadband:
- Total broadband net additions, defined as wireline (Fios and DSL) and fixed wireless, increased by 30,000 from the previous year to 106,000.
- Fixed wireless net additions increased to 78,000 in the third quarter of 2021, up from 55,000 in the previous quarter.
- In the fourth quarter of 2021, 55,000 Fios Internet net additions are expected. Verizon reported 360,000 Fios Internet net additions for the entire year of 2021, the greatest yearly result since 2014. In the fourth quarter of 2021, total Fios revenues were $3.2 billion, up 5.7 percent year over year. Fios revenue for the full year 2021 was $12.7 billion, up 4.6 percent year over year.
“2021 was a pivotal year for Verizon, and it will serve as a catalyst for us,” stated Hans Vestberg, Chairman and CEO of Verizon. “In 2021, we met all of our objectives and achieved significant progress on our five growth paths, concluding the year with strong operational and financial momentum.” As we head into 2022, we’ll have the resources we need to carry out the strategy we put out in 2019. Because 2022 will be the most exciting year yet for Verizon, we are laser-focused on executing our 5G strategy and generating value to our customers, shareholders, workers, and society.”
Verizon reported $1.11 EPS in the fourth quarter of 2021, compared to $1.11 in the fourth quarter of 2020. On an adjusted basis*, fourth-quarter 2021 EPS, excluding extraordinary items, was $1.31, up 8.3 percent year over year from adjusted EPS* of $1.21 in fourth-quarter 2020.
A net pre-tax loss of roughly $1.2 billion from exceptional items was included in fourth-quarter 2021 EPS. This comprised a $2.4 billion charge for debt prepayment, a $106 million severance charge, a $1.2 billion credit for annual mark-to-market for pension and OPEB (other post-employment benefits) obligations, and a net gain of $131 million principally attributable to an investment disposal. The revenue linked with the TracFone acquisition was included in the fourth-quarter 2021 results, as the deal was completed on November 23. TracFone’s revenue in 2021 was nearly $700 million greater than TracFone’s revenue in the fourth quarter of 2020.
Verizon earned $5.32 per share in full-year 2021, compared to $4.30 in full-year 2020. 2021 EPS was $5.39 on an adjusted basis*, excluding extraordinary items, compared to $4.90 in 2020, a 10.0 percent rise year over year.
Verizon Chief Financial Officer Matt Ellis commented, “Verizon generated another outstanding earnings performance this quarter.” “As we extended our portfolio with the TracFone purchase and witnessed robust demand for our products and services, our financial discipline enabled us to generate impressive service revenue growth and profitability this quarter.” We exceeded our adjusted EPS* estimates in 2021, increased revenue, met our $10 billion cost-cutting target, and funded our C-Band spectrum investment.”
Consolidated results
- In the fourth quarter of 2021, total consolidated operating revenues were $34.1 billion, down 1.8 percent from the fourth quarter of 2020. Operating revenue increased 4.8 percent year over year after adjusting for the sale of Verizon Media on September 1. The ongoing reductions in legacy wireline products were mitigated by strong wireless service revenue growth and wireless equipment revenue. Consolidated operational revenues for the full year 2021 were $133.6 billion, up 4.1 percent year over year.
- In 2021, cash flow from operations was $39.5 billion, down from $41.8 billion the previous year. Increased working capital from device payments receivables and higher cash taxes offset the business’s continued good growth.
- Capital expenditures for the year 2021 totaled $20.3 billion. As the firm begins the first phase of C-Band rollout covering more than 95 million people in the United States, capital expenditures are continuing to support the surge in traffic on the company’s 4G LTE network. In 2021, capital expenditures for C-Band were estimated to be over $2.1 billion.
- The corporation had $19.3 billion in free cash flow* at the end of 2021, down from $23.6 billion at the end of 2020.
- Verizon’s unsecured debt climbed $18.2 billion year over year to $136.7 billion at the end of fourth-quarter 2021, but improved $4.9 billion sequentially from the end of third-quarter 2021. The company’s net unsecured debt* balance grew $37.5 billion year over year to $133.7 billion at the end of fourth-quarter 2021, but reduced $3.7 billion from the end of first-quarter 2021, with its net unsecured debt to adjusted EBITDA ratio* at about 2.8 times.
Consumer results
- Consumer’s higher-tier premium mobility and broadband solutions witnessed strong demand in the fourth quarter of 2021. The quarter was characterized by strong wireless service revenue growth, solid profitability, and tremendous Fios revenue growth. Consumers maintained their lead in 5G adoption, with more than one-third of cellular phone consumers owning 5G-capable devices by 2021.
- Verizon Consumer revenues totaled $25.7 billion in the fourth quarter of 2021, up 7.4% year over year. This included a net revenue change of around $700 million from TracFone, which included about $500 million in incremental service revenue year over year. Total Verizon Consumer revenues for the full year 2021 were $95.3 billion, up 7.6% from the full year 2020.
- Consumer wireless service revenues were $14.6 billion in the fourth quarter of 2021, up 7.7% year over year, thanks to further step-ups to unlimited and premium unlimited plans, as well as TracFone’s contribution. Total Consumer wireless service revenues for full-year 2021 were $56.1 billion, up 4.7 percent from full-year 2020.
- In the fourth quarter of 2021, consumer wireless retail postpaid churn was 0.94 percent, while wireless retail postpaid phone churn was 0.77 percent.
- Consumer reported 667,000 wireless retail postpaid net additions in the fourth quarter of 2021. There were 336,000 net additions to phones and 369,000 net additions to other connected devices, with 38,000 net losses to tablets. Since November 23, Consumer has recorded 85,000 wireless prepaid net losses, including TracFone figures.
- In the fourth quarter of 2021, Consumer reported 51,000 Fios Internet net additions, while in the entire year of 2021, Consumer reported 339,000 Fios Internet net additions. In the fourth quarter of 2021, Consumer Fios revenues were $2.9 billion, up 5.6 percent year over year. In the fourth quarter of 2021, Consumer reported 69,000 Fios Video net losses.
- Consumer segment operating income was $7.3 billion in the fourth quarter of 2021, up 3.9 percent year over year, with a segment operating income margin of 28.6 percent, down from 29.6 percent in the fourth quarter of 2020. The sector operating income margin in full-year 2021 was 31.4 percent, down from 32.6 percent in full-year 2020. Service revenue growth drove segment EBITDA* to $10.3 billion in the fourth quarter of 2021, up 4.1 percent from the fourth quarter of 2020. Due to higher equipment revenues associated with increasing volumes, segment EBITDA margin* was 40.3 percent in fourth-quarter 2021, down from 41.5 percent in fourth-quarter 2020. In 2021, segment EBITDA margin* was 43.7 percent for the whole year, down from 45.5 percent in 2020.
Business results
- The year 2021 ended with a surge in corporate activity and demand for wireless items. Strong phone gross additions in Small and Medium Business and the fourth consecutive quarter of wireless service revenue growth for Global Enterprise characterized the fourth quarter of 2021.
- In the fourth quarter of 2021, total Verizon Business revenues were $7.8 billion, down 3.0% year over year. The continued decreases in conventional landline revenue are being countered by the growth of wireless revenue. Verizon Business revenues totaled $31.0 billion in fiscal year 2021, up 0.3 percent from fiscal year 2020.
- Revenues from business wireless services totaled $3.1 billion in the fourth quarter of 2021, up 1.5 percent year over year. Revenues from business wireless services was $12.4 billion in fiscal year 2021, up 4.8 percent from fiscal year 2020.
- In the fourth quarter of 2021, business wireless retail postpaid churn was 1.26 percent, while wireless retail postpaid phone churn was 1.01 percent.
- In the fourth quarter of 2021, the company recorded 391,000 wireless retail postpaid net additions, including 222,000 phone net additions. This was Business’s strongest quarterly phone net addition performance since the pandemic began.
- Business sector operating income was $796 million in the fourth quarter of 2021, down 16.2 percent year over year, and segment operating income margin was 10.2 percent, down from 11.8 percent in the fourth quarter of 2020. The sector operating income margin in full-year 2021 was 11.1 percent, down from 12.2 percent in full-year 2020. In the fourth quarter of 2021, segment EBITDA* was $1.8 billion, down 7.4% from the fourth quarter of 2020. Due to pressure in legacy wireline products, segment EBITDA margin* was 23.5 percent, down from 24.6 percent in the fourth quarter of 2020. In 2021, segment EBITDA margin* was 24.2 percent for the whole year, down from 25.4 percent in 2020.
Outlook and guidance
- Organic revenue growth of roughly 3% in service and other areas. Service and other revenue growth is estimated to be in the range of 1.0 percent to 1.5 percent on a reported basis, which includes the net impact of the sale of Verizon Media and the company’s ownership of TracFone.
- Revenue increase for wireless services was reported to be in the range of 9% to 10%. Without the TracFone acquisition, cellphone service revenue is likely to increase by at least 3%.
- Adjusted earnings per share* of $5.40 to $5.55. Non-cash item headwinds are expected to outweigh adjusted EBITDA* growth in 2022, according to the business. The company’s adjusted EPS* will no longer include amortization of acquisition-related intangible assets starting in 2022. Intangible amortization had a negative impact on adjusted EPS* of roughly 11 cents in 2021. The impact is expected to be around 17 cents to 19 cents in 2022, according to the business.
- Capital spending, excluding C-Band, is expected to be in the range of $16.5 billion to $17.5 billion in 2021, down from $18.2 billion in 2021, as the business begins its transition to lower capital intensity. As the firm continues to build up the initial markets and prepares for the deployment of Phase 2 spectrum, additional expenditures connected to the company’s C-Band 5G network are projected to be in the range of $5 billion to $6 billion.
What does AT&T’s WACC stand for?
Because raising capital is expensive. Excess returns are generated when a company’s ROIC is higher than the cost of raising the cash required for the investment. A company that expects to generate positive excess returns on additional investments in the future will see its value rise as it expands, but a company that gets returns that aren’t equal to its cost of capital would lose value as it expands.
AT&T’s weighted average cost of capital is at 4.61 percent. AT&T’s return on investment (ROI) is 4.42 percent (calculated using TTM income statement data). AT&T earns profits that aren’t proportional to its capital costs. As it expands, it will depreciate in value.