Thursday, November 20, 2014

* Verizon (VZ) - Two Incredible Trends; One With No Explanation?

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Do this analysis yourself with the click of mouse button: Capital Market Laboratories

VZ is trading $50.25, down 0.5% with IV30™ down 2.0%. The Symbol Summary is included below.

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VZ is driving some remarkable efficiencies in its business, which is good for the company but does have an impact on employee count as the firm grows.  The firm also has a very interesting phenomenon dealing with intangible assets that, at a very quick glance, look... weird?...  Let's take a look together.

I tweeted about this and first published an introductory article on Benzinga. Here is that story (and tweet):

The two-year stock return chart is include below.

Provided by Livevol

The stock is up ~16% in the last two-years.... 'Nuff said, let's turn to the guts of Verizon.

Total Revenue over Number of Employees vs. Number of Employees over Total Assets
As Verizon’s business has changed and evolved its efficiencies are growing linearly. In the chart below we can see since 2007 that total revenue per employee has risen four-fold and in the red line we can see the number of employees over total assets has dropped 33%.

Provided by Capital Market Laboratories

Total Revenue over Number of Employees vs. Peers
This isn’t a financial disclosure that is broadly reported, but for the firm’s that do report it in the Telecom sector, we can see that VZ is head and shoulders above the rest for the trailing-twelve-months.

Provided by Capital Market Laboratories

Intangible Assets over Total Assets vs. Goodwill over Total Assets
While efficiencies are growing for Verizon, the balance sheet does show some points of contention, or at the very least, points of interest.

The blue bars chart intangible assets as a percent of total assets. This measure now sits at over 35%. More compelling is that the measure has remained essentially the same for the last seven years which is unusual since intangible assets should eventually be amortized (decline).  I believe the rule is 15 years, linear amortization, but check that -- that;s a flickering memory in my mind not a fact checked with a primary source.

One explanation for intangible assets to remain relatively constant could be increases in periodic goodwill via capital transactions, but the red line charts goodwill over total assets, and we can see rather clearly that goodwill has remained consistent for the last five-years. So... that's not it...

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Intangible Assets over Total Assets vs. Asset Growth, 1-Year
Delving deeper into the intangible asset valuation issue, we have charted the intangibles over total assets again as the blue bars, but this time we compare it to the one-year change in total assets (red line). Looking at the most recent periods, we can see a dramatic decline in asset growth – to the point of asset shrinkage, yet somehow intangible assets as a percent of total assets has remained the same. 

This draws the question out further, not only is it interesting that intangible assets are not getting amortized, but further, they are not dropping with total assets as we would expect.

Provided by Capital Market Laboratories

Appendix – Other Interesting Charts

Operating Revenue vs. Operating Expense
When looking at the purest (but most rolled up) measure of operating efficiency, we can see that VZ earns more revenue for every $1 in operating expense than every company in its peer group.  i do note the rather tight cluster around $1.30.

Provided by Capital Market Laboratories

Capex / Total Revenue vs. Peers
Having gone through the exercise of examining intangible assets through which we found the shrinkage in assets y-o-y, a fair measure to examine is capital expenditures per dollar of revenue for VZ relative to peers.

 In this case we see, again rather easily, the VZ is not “under spending,” and is in fact right about in the middle relative to its peers. In English, Capital expenditures (investment) does not seem to be an issue for VZ.

Provided by Capital Market Laboratories

This is trade analysis, not a recommendation.

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