Leading telecommunication service provider, Verizon Communications Inc. (VZ) has reportedly ruled out share repurchase for the next two to three years. The company’s current focus is on lowering the debt level following its $130 billion buyout of Vodafone Group plc’s (VOD) 45% interest in Verizon Wireless.
While the acquisition might have imposed significant debt on the company’s balance sheet, it is expected to catapult greater financial synergies given total control over Wireless business. The buyout will also provide a competitive advantage over peers like AT&T, Inc. (T) and Sprint Corporation (S).
The company in its press release on Monday detailed its financial targets for 2014. It expects consolidated revenue growth of 4% and projects increased adjusted consolidated EBITDA margin supported by Wireless and Wireline growth. Last year, Verizon registered consolidated operating income margin of 26.5% along with adjusted consolidated EBITDA margin of 34.9%.
Verizon continues to focus on maximizing free cash flow as capital efficiency (capital expenditure-to-revenues ratio) is showing steady improvement. Concurrent with management’s expectation, the company’s CapEx to revenues ratio improved to 13.8% in 2013 from 14% in 2012. For 2014, management expects capital expenditure in the range of $16.5–$17 billion with continued improvement in annual CapEx to revenues ratio. The company ended the year with net debt of $40.1 billion, lower than $48.9 billion at 2012 end. Net debt to adjusted EBITDA ratio was about 1x compared with 1.3x as of Dec 31, 2012.
While the company may have decided to de-emphasize share repurchase for the near term, it currently considers dividend payment as a significant mode of investor return and expects to prioritise the same. As a result, in Sep 2013, the company’s board of directors approved a 2.9% hike in its quarterly dividend to $0.53 per share, representing a dividend increase for the seventh consecutive year.
Verizon currently has a Zacks Rank #3 (Hold).