Shares of Verizon Communications (VZ +0.21%) were falling after the wireless company reported mixed second-quarter earnings results. Its stock remains up more than 20% over the past year, but it is now up only modestly year to date, underperforming the strong year-to-date performance of the S&P 500.
Let's take a closer look at Verizon's most recent results, its valuation and dividend, and whether now is a good time to buy the stock on this recent dip.
Mixed Q2 quarterly results
For the second quarter, Verizon saw its revenue rise 0.6% to $32.8 billion, while its adjusted earnings per share (EPS) fell from $1.21 a year ago to $1.15. Its adjusted EPS came in line with analyst expectations, while revenue came up short of the $33.1 billion consensus. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) edged up 2.5% to $12.3 billion.
NYSE: VZ
Key Data Points
The company enjoyed strength in its important wireless business, where revenue rose 3.5% to $19.8 billion. It saw 340,000 retail postpaid net additions in the quarter, including 148,000 postpaid phone net additions.
In addition, Verizon saw strong broadband growth as well, with total net additions of 391,000. It ended the quarter with 11.5 million total broadband subscribers, an increase of 17.2% year over year. Fios revenue rose 0.5% in the quarter to $3.2 billion.
Prepaid wireless, however, was a weak spot, with the company losing 624,000 subscribers in the quarter. The company said 410,000 of the losses were directly tied to the end of the Affordable Connectivity Program (ACP). The government program gave participating households $30 per month toward internet service and up to $100 toward the purchase of tablets, computers, or laptops. The program ended on June 1.
Verizon Business revenue, meanwhile, fell 2.4% to $7.3 billion. The company added business wireless subscribers although wireline subscribers declined.
The company generated $8.5 billion in free cash flow through the first six months of the year. Meanwhile, it has paid out dividends of $5.6 billion through the first half of the year. As such, the company's dividend is well covered by its free cash flow.
Verizon's balance sheet is also in solid shape, with the leverage ratio on unsecured debt (net unsecured debt/trailing-12-month adjusted EBITDA) coming in at 2.5. The stock currently has a forward dividend yield of about 6.8%. This is an attractive yield, and given its dividend coverage and balance sheet, I would expect the dividend to continue to grow in the years ahead.
Looking ahead, the company projected that it would grow full-year wireless revenue by between 2% to 3.5%. It forecast adjusted EPS to come in between $4.50 and $4.40, with adjusted EBITDA to grow between 1% to 3%.
Image source: Getty Images.
Is the price dip a buying opportunity?
Verizon's core postpaid wireless business remains strong, as does its broadband business. Meanwhile, the end of the ACP program not surprisingly hastened more churn in its prepaid business. This is an industry-wide issue caused by the end of the government program and will impact all companies that were involved in this program.
Meanwhile, Verizon is still seeing declines in its legacy business wireline business. This will likely remain a drag on results going forward.
The key takeaway, though, should be that Verizon's core businesses are still performing well and growing. The company also continues to generate a lot of cash, its balance sheet is in good shape, and it should be able to nicely continue to grow its dividend.
From a valuation perspective, the company trades at just above a forward price-to-earnings (P/E) ratio of 8 based on 2025 earnings estimates. This is a similar valuation to that of rival AT&T.
VZ PE Ratio (Forward 1y) data by YCharts
Given the strength of Verizon's core businesses, combined with a modest valuation and attractive dividend yield, income-oriented investors could look to be buyers of the stock at current levels. The dividend is well covered and should only continue to increase in the years ahead.
