Verizon: New Spectrum Drives Low-Teens IRR; Current 4.6% Dividend Yield

(Preview) Initiation of Coverage (VZ US) (Buy)

Summary

• We expect Verizon's 2021-24 EPS CAGR to be 6%+, from monetizing new C-band spectrum with 5G mobile, fixed wireless, MVNO, etc.

• Our confidence is helped by Verizon's track record in delivering disciplined and profitable revenue growth in its core Consumer business.

• The Dividend Yield is 4.6%, with a dividend that is 2x covered by adjusted EPS and 1.5x covered by recurring Free Cash Flow.

• The P/E is just over 10x. When deleveraging and C-band CapEx are complete, more dividends and buybacks will help a re-rating upwards.

• With shares at $54.43, we expect an exit price of $75 and a total return of 55% (14.6% annualized) in less than 3.5 years. Buy.

Introduction

We are initiating a Buy rating on Verizon Communications Inc. We believe VZ stock can deliver a total return of 55% (14.6% annualized) by 2024 year-end, from a combination of EPS growth, P/E re-rating and Dividend Yield.

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