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Verizon Communications Inc VZ

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Morningstar’s Analysis

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Economic Moat




Verizon Shows Stability During Second Quarter; Share Fairly Valued

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.

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Company Profile

Business Description

Verizon is now primarily a wireless business (70% of revenue and nearly all operating income). It serves about 89 million postpaid and 4 million prepaid phone customers and connects another 24 million data devices, like tablets, via its nationwide network, making it the largest U.S. wireless carrier. Fixed-line telecom operations include local networks (12% of revenue) in the Northeast, which reach about 25 million homes and businesses, and nationwide enterprise services (10%). Recent investments, including fiber network construction, have supported the wireless business in addition to expanding traditional fixed-line capabilities. Verizon Media Group, the online media and advertising firm formed with the acquisitions of AOL and Yahoo, provides the remainder of revenue.

1095 Avenue of the Americas
New York, NY, 10036
T +1 212 395-1000
Sector Communication Services
Industry Telecom Services
Most Recent Earnings Jun 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type High Yield
Employees 135,300