Analyst Note
| Michael Hodel, CFA |Verizon’s second-quarter results looked a bit more like we had expected, given the pandemic, than AT&T’s (reported July 23), but we suspect the differences primarily come down to the treatment of customers struggling to pay their bills and taking advantage of the Keep Americans Connected pledge. Both firms produced broadly stable wireless results during the quarter, with the pandemic taking a small bite out of services revenue as customers roam less, especially internationally. Unlike AT&T, Verizon reported a huge jump in free cash flow (up nearly 75% to $13.7 billion in the first half), but the growth is primarily due to the timing of tax payments and working capital changes. Still, Verizon was able to repay a large chunk of debt during the quarter and has cut net borrowing by nearly $4 billion, or 4%, through the first six months of the year. Overall, Verizon is performing broadly in line with our expectations, and we don’t plan to change our $59 fair value estimate or narrow moat rating; we view shares as fairly valued.