Was Warren Buffett right in selling Verizon Communications after all?

Warren Buffett recently got rid of more and more Verizon Communications (WKN: 868402) shares. Why, why, why? Presumably because this stock no longer promises the best risk-reward ratio and the star investor simply sees better opportunities.

We can see this again from the current quarterly figures. Perhaps a trend setting indicator? In any case, Verizon Communications stock corrected about 7% after the numbers were released. But of course we don’t know if Warren Buffett sold because of a possible operating weakness.

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Verizon Communications: The Numbers at a Glance!

In any case, it’s certain that Verizon Communications made a mistake in a few places this past quarter. Sales increased by just 0.1% year-on-year. Net income, on the other hand, fell to $5.31 billion from $5.94 billion a year earlier. Of course, that’s not what investors wanted to see.

But operationally, there were also some construction sites. Verizon Communications executives are talking about gaining 12,000 net wireless phone subscribers in the past quarter alone. A fairly small number, possibly exhibiting some cyclicality with renewals and possible changes. But the weakness of competitor AT&T also does not bode well for the market as a whole.

Verizon Communications was also forced to lower its forecast for the current fiscal year due to the weaker operational performance. Instead of $5.40 to $5.55 for earnings per share, management now expects a value in the range of $5.10 to $5.25. Even if it doesn’t look like it, it’s still important. And could also be a reason for Warren Buffett’s disinterest.

Nevertheless, the American telecommunications group remains profitable and a dividend machine. Foolish investors should consider what price seems appropriate given the risk and the scenario of weaker operational results.

Warren Buffett doesn’t seem to be in the mood to buy

In any case, Warren Buffett doesn’t seem to be in a buying mood at Verizon Communications. But the fundamental valuation is now significantly cheaper. With a current share price of US$44.45, the P/E ratio should be 8.7 even in the worst case scenario so far. The dividend yield, on the other hand, comes to 5.75 per cent. It can be attractive.

It is true that the operational rudder must be rotated. But even with a 50% payout going forward, this dividend stock at least seems interesting. Barring further operational shocks, there could be quite a bit of value in this cheap value stock right now. But decide for yourself if it is enough for you.

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Vincent owns shares in Verizon Communications. The Motley Fool recommends Verizon Communications.

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