Verizon Communications Inc. (NYSE:VZ) to Sustain Growth for the Long Term

November 21, 2016

Verizon Communications Inc. (VZ)
Verizon Communications Inc.

Co-Managing Partner Keith Trauner of GoodHaven Capital Management says Verizon Communications Inc. (NYSE:VZ) is a provider whose stock is cheaper than its competitors; however, VZ offers the best network and should see moderate growth for the long term.

Verizon has the best spectrum footprint in the United States. It’s starting to deliver much faster speeds across its network, which of course increases their attractiveness relative to other providers but also may start to make mobile competitive with some of the weaker cable companies….

So you have very sensible management, you have material optionality with higher speeds and adding IoT devices, and you have cash earnings that are higher than the nominal reported earnings due to several nonoperating factors.

So we look at the company that’s selling for roughly 12 times or 13 times expected real earnings with 5% dividend yield, which is attractive on an absolute basis, and it’s much cheaper than other predictable companies in the marketplace. Some of these others were viewed as kind of clockwork businesses, were starting to sell at 20, 30 times earnings, 35 times earnings, which makes almost no sense to us.

And Verizon had announced that earnings would be flat for a year, they increased spending in a couple of areas, and I think it scared a lot of people. But over time, Verizon should have significant pricing power in its core service simply because, in today’s world, there’s nobody who can do without mobile service, and they only have a couple of alternatives.

You can go to AT&T (NYSE:T), you can go to T-Mobile (NASDAQ:TMUS), or you can go to Sprint (NYSE:S), but right now, that’s it. And of those four companies, I think it’s pretty clear that Verizon has the best network and the greatest capacity, and the greatest spectrum capacity and value. So over time, the company is not going to grow at a very rapid pace, but we think, clearly, they should be able to sustain moderate growth for a very long period of time.