What Exactly Is Going on With Verizon?

It's been a fairly epic quarter for Verizon (NYSE: VZ  ) . In September, the telecom behemoth finally followed through on years of will-they-or-won't-they speculation by buying out the 45% stake in Verizon Wireless held by the UK's Vodafone. And that's not all. According to the latest quarterly earnings report, Verizon's wireless division has made 4G LTE available to 97 percent of the US population.

With this kind of all-consuming coverage, one of the biggest buyouts of all time, and double-digit quarterly sales growth under Verizon's belt, one might wonder -- could the company eventually find itself in danger of maxing out its profitability? Let's take a closer look at its latest financial statistics to find out.

Everything's coming up Verizon

This quarter, the telecom great saw almost all its most vital financial metrics go up from where they'd been a year ago. Overall revenue was up 4% to $30.2 billion, and even with the myriad expenses needed to run a nationwide wireless network Verizon actually managed to retain more of its operating and net profits than it did during Q3 2012. Operating income was $7.1 billion compared to $5.4 billion last year, and the company's net profit was $5.57 billion, a 29% improvement from $4.3 billion.

What goes up must come... down?

Verizon holds the lead for wireless subscribers, with 101 million retail subscribers in the U.S. The company is also close to covering the entire country with its 4G LTE capabilities. Does that mean that Verizon might be overvalued and running out of room to grow?

Short answer: nope. Verizon has made significant progress with its Global IP division in recent years, having created 830,000 route miles of cable that goes across both land and sea. In 2012, Verizon created 12,000 route miles to create the system's backbone, which helps expand network initiatives in Asia, Africa, South America, and Europe. Back in the States, even if Verizon's 4G LTE capabilities cover the entire U.S., the company will still have its work cut out for it keeping the enormous wireless system up to date and adapting to whatever big tech trend comes along next.

This company isn't anywhere close to being overvalued, either. Since Verizon has been able to retain a more sizable amount of its profits than its top competitors, its P/E is currently 11.7 in an industry that averages 26.9. AT&T, meanwhile, trades at 26, and Sprint, having had negative net income for the past several years, isn't even applicable from a P/E perspective.

Can you hear me now?

Even after announcing the third-largest buyout in corporate history, Verizon appeared to barely miss a step on its latest quarterly earnings call. It'll be interesting to see how the company continues to perform as it works on paying off its newly accumulated massive pile of debt, but in the meantime the company has a dominating hold on a hot U.S. wireless technology, is working on expanding its international presence, and has maintained a P/E valuation that suggests there's plenty of room to grow from here.


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Comments from our Foolish Readers

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  • Report this Comment On October 24, 2013, at 11:35 PM, whyaduck1128 wrote:

    "could the company eventually find itself in danger of maxing out its profitability?"

    I can think of lots of businessmen and businesswomen who'd like to try to do just that. Personally, I don't think that there IS a maximum.

  • Report this Comment On October 26, 2013, at 1:37 AM, valuePicks wrote:

    Error in the Article, Verizon's P/E as of 10/24 was 66.57 not 11.7 as the article states, in regards to whether it thought VZ was overvalued. At 66.57 P/E, is it overvalued?

    "This company isn't anywhere close to being overvalued, either. Since Verizon has been able to retain a more sizable amount of its profits than its top competitors, its P/E is currently 11.7 in an industry that averages 26.9. AT&T, meanwhile, trades at 26, and Sprint, having had negative net income for the past several years, isn't even applicable from a P/E perspective."

  • Report this Comment On October 27, 2013, at 4:18 AM, stef333 wrote:

    ValuePicks,

    how do you come to 66.57?

    If you look at the 2012 Annual results of $0.31 EPS, that would give an even higher PE, but the estimated PE for 2013 seems to be around 18.

  • Report this Comment On October 28, 2013, at 10:22 AM, investorcj wrote:

    P/E

    Market Watch 66.47

    Yahoo Finance 65.81

    Google Finance 66.18

    10/28/13 - 10:00 EST

    I would say that all three cannot be incorrect. The investor pays $65.81 to Verizon's $1.00. Dividend.com does not post the P/E but VZ came up on their recommended dividend stocks on 10/23/13 at $51.14.

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