Fin 625 Verizon’s Stock Valuation & Analysis

Verizon’s Stock Valuation&Analysis

11.13.2018

FIN625

Dohyun Nam

Reia Lewis

1. Economic and Industry Analysis

1. Economic Analysis

Factors such as a strong labor market, seen through low unemployment and high wages contributes to a strong consumer confidence. Strong consumer confidence leads to increased spending, ultimately leading to higher company earnings. However, upcoming tariffs and an upward trend in interest rates will more than likely dampen the economic growth caused by a strong labor market. The U.S. leads the world in imports. As tariffs are enacted, prices of goods being exported from other countries into the U.S. will become more expensive to businesses and consumers.

     2. Industry Analysis

1. Competitive Rivalry Strong

Due to the nature of the telecommunications service market, product diversities are very low, and differentiation is difficult. This narrow product diversities make it easy for customers to move to competitors and ultimately maximize their competitive rivalry. So, as mentioned above, Verizon is using service quality differentiation as their competitive advantage. However, there is still a risk even if the service has been differentiated because the gap with among competitors could always be reduced. The high aggressiveness of firms further strengthens competition within the industry. Verizon and other competitors aggressively compete for their marketing strategies and technology development. Finally, high exit barriers intensify the competition. The high cost of building infrastructure makes existing competitors still leave in the market or industry, which keeps competition high.

1. Bargaining Power of Buyers Moderate

Large availability of information provides high quality information for consumers to know about the products in the market. These external factors reinforce the bargaining power of buyers based on such variables as the ability to evaluate and compare competitor services of Verizon. Low to moderate switching costs among the service providers have a significant impact on a bargaining power of the buyers. It makes it easy for consumers to move to other wireless service firms, which ultimately tends to limit the power of consumers that affect Verizon. Moderate price sensitivity also has a major impact on consumers who can use prices as a basis for deciding to move to other competitors.                                 

1. Bargaining Power of Suppliers Moderate

         The moderate size of individual suppliers has a moderate contribution to the intensity of power of suppliers. A considerable number of individual suppliers moderately influence Verizon's market strategy. Suppliers also have a significant impact on the company or industry environment due to their size. These conditions make it possible for suppliers to influence operations and management strategies such as supply chain management of the company. The overall supply strategies of individual suppliers has a moderate and limited impact on the company's supply chain, which is considered a significant factor. This is because the company has moderate access to other resources or suppliers. So, the bargaining power of suppliers has a moderate impact on strategically important matters.

1. Availability of Substitute Products Moderate

         Substitution products from cable and satellite providers is the telecommunications industry main threat Consumers have the option to use these providers for their home and business internet services.

1. Threat of New Entry Weak

         Due to the high capital investment required to gain entry into the telecommunications industry, there is a weak threat of entry. Although, Federal Communications Commision regulations have lightened up over the past couple decades, those wishing to enter into the market still have to abide by many regulations. Regulation compliance also contributes to a pretty substantial barrier to entry.

1. Company Analysis

Verizon's recent annual financial report for 2017 shows that operating revenue is $ 126,034, operating income is $ 27,414, net income is $30,101. Earnings per share is approximately $7.36. In 2016, each data was $ 125,980, $ 27,059, $ 13,127, and $ 3.22, respectively, so, it can be seen that it is increased overall in 2017. The cash dividends declared per common share were $ 2.335, up about 2.2% from $ 2.285 in 2016. Per financial position, total assets in 2017 were $ 257,143 short-term debt $ 3,453, long-term debt $ 113,642, and Total Equities $ 43,096. In 2016, the company recorded data $ 244,180, $ 2,645, $ 105,433, and $ 22,524, respectively. Specifically, Equity increased significantly in 2017 compared to 2016. In addition, the total cash flow in 2017 was $ 25.3billion.  Verizon's CEO also said that the company will bring more innovation through their superior technology, networks and employees in 2018, especially about 5G network. It is their new goal to maintain good financial standing, to strengthen existed customer loyalty, and to attract new customers.

Per market share of wireless carrier, according to Statista, Verizon was largest holder with 35.07%, followed by at & t which closely traces Verizon with 33.83% in the second quarter of 2018. In addition, T-mobile and Sprint account for 17.37% and 12.34%, respectively.

1. SWOT Analysis

1. Internal factors

Strengths

First, Verizon has a strong brand image. The company has built strong brand reputation by differentiating the quality of the service provided against the competitors. To provide better service ultimately helps the company to build strong brand image. Second, the company pursues economies of scale based on their broad telecommunications infrastructures. The Infrastructures can maximize service efficiency. In relation, the company can provide high quality of service with much better efficiency, attracting diverse customer base such as customers who are even sensitive to service quality. The company is the largest carrier in the United States and holds the largest market share. This strength can be a significant and relatively competitive advantage for Verizon against its competitors. Verizon is also taking the lead in bringing 5G network technology to market. 5G will play a major role in the aspect of the speed of the services it provides in the telecom market in the future. The company is developing proprietary technologies and services for 5G networks.

Weaknesses

First, as internal factors, low diversification can increase the market risk of the company. Verizon takes the mainstream in the revenues of the telecommunications market, which automatically increases the risk exposure in the market. Second, the high cost of company infrastructures would be another factor of weaknesses. Although Infrastructures can increase the company's service quality and efficiency, it costs a lot to operate, develop, or maintain. This, in turn, lowers the company's price competitiveness. High costs make it difficult for companies to offer low-priced products or services. In this regard, the company's strategy for high quality and efficiency also makes considerable weaknesses. Therefore, it is better for companies to prioritize improving diversity.

1. External Factors

Opportunities

Expanding and growing business to global markets based on telecommunications networks around the world can be an opportunity for Verizon. Based on these networks, the company can expand the breadth of its services and the range of customers it can offer. Advancing into emerging markets could be a great opportunity for the company because their economies are growing fast, and the power of the buyers are getting larger. Another opportunity is to diversify the business. For example, companies are heavily reliant on the wireless telecommunication market in United States, which can diversify these risks through business diversification and reduce market dependence on few markets. In addition, it can strengthen network externalities based on a large consumer base. Verizon can maximize the value of the services they offer by increasing their customer base and market share. Large market share encourages more consumers to use their services. Finally, the technical leadership in the 5G network market will be a great help for them to gain superior position in the market.