The Buffett Lens

Verizon Communications brings to mind one of those reliable old utilities that kept the lights on during my early years in Omaha. No matter if times are good or the economy hiccups, people still need to make calls, send messages, and stream their shows – they might grumble about the bills, but they keep the service going. Through its subsidiaries, it operates in Consumer and Business segments, offering wireless under Verizon and TracFone, and other products worldwide. It's the kind of setup where demand stays pretty steady because communication has become as everyday as turning on the faucet.

This outfit has a wide moat, much like a castle protected from invaders. The network effects and the sheer scale of its infrastructure make it hard for newcomers to build something competitive from scratch. That moat score of 96.6 out of 100 speaks to how entrenched the business is. Looking at the numbers, the revenue has been remarkably consistent over the past eight quarters, moving from $33.5 billion to $34.4 billion. Net income has hovered around $4.9 billion to $5.0 billion in that time. Over the last twelve months, we're talking $139.1 billion in revenue and $17.3 billion in net income. The return on equity came in at 16.8% most recently, averaging 18.2% over five years. Now, as I've said many times, what matters is achieving a high earnings rate on the equity capital employed, without relying on tricks or too much borrowing. This level is solid and shows the business can generate good returns on what owners have put in.

A good managerial record is far more a function of what business boat you get into than how effectively you row. Verizon's boat has those strong fundamental economics thanks to its position in communications. The managers running it seem to be doing their part, and with institutional investors holding 70.2% of the shares, there's oversight from folks who care about long-term performance. Insider ownership is at zero percent, which is a bit low, but the business itself provides a good environment for capable people to operate. Much of the extra value in a place like this often gets created by the managers now running things, and our job is simply to spot talented ones and let them work without interference.

That said, I have to point out the risks and shortcomings with some humility. The debt to equity stands at 1.90 times, which is more leverage than makes me entirely comfortable. I've observed that even a business earning a fine return like 20% on capital can produce a negative real return for owners under inflationary conditions if there's undue leverage. Telecom isn't immune to that, and the need to keep investing in networks means capital expenditures will always be part of the picture. Growth in the past has been decent, but as we've seen with many businesses, those high rates of increase in net worth or earnings can't be expected to continue indefinitely as the industry matures.

At the current price around $46.65 with a market cap of $194.8 billion, the valuation metrics are appealing for what you're getting. The price to earnings ratio is 11.4 times, price to book is 1.9 times, and enterprise value to EBITDA is 7.9 times. What counts is intrinsic value, not just book value, and for a company with this kind of consistent earning power and economic moat, it could be worth more over time than the market price suggests right now. Our expectations should be tempered by realities, but this looks like it might offer a margin of safety for the long haul. In the end, for those who can be patient and focus on the enduring value of essential services rather than daily price wiggles, Verizon could make sense as part of a diversified approach. Businesses like this don't promise excitement, but they can deliver steady compounding if bought sensibly and held through the ups and downs. The ticker for Verizon Communications Inc. on eToro is $VZ.

When I think about a company like EQT Corporation, it reminds me of a farmer who owns a big stretch of fertile ground in the hills and can pull a steady crop of natural gas from it year after year. The land itself does a lot of the heavy lifting, but the price the crop fetches at market still swings with the weather and the wider world, so you can't just plant and forget.

This outfit has shown some real consistency in its earning power lately. Revenue has climbed from around $2.4 billion to $3.6 billion over the past eight quarters, while net income rose from $0.2 billion to $1.5 billion. Over the last twelve months that adds up to $9.6 billion in sales and $3.3 billion in profits. The latest return on equity sits at 13.1 percent, better than the five-year average of 9.4 percent. That kind of result on the capital shareholders have put in, without loading up on debt (the debt-to-equity ratio is just 0.24 times), lines up with what I've always looked for: a decent rate of return on equity capital without fancy accounting tricks or excessive borrowing. In my 1979 letter I pointed out that even a 20 percent return can turn into a poor deal for owners once inflation gets going, so seeing this level of performance with a light debt load is worth noting.

The business also carries a moderate moat, scored at 64.9 out of 100, built on its asset base and cost advantages in the Appalachian Basin. That is the kind of edge that can protect returns over time, much like a castle that has both thick walls and a good supply of water inside. Management appears capable, with institutional owners holding nearly 94 percent of the shares, though insiders own less than 1 percent. As I wrote back in 1985, a fine manager can only do so much if the underlying economics of the boat are poor; here the economics seem decent enough, and the operators have been turning in results that suggest they are making the most of what they have.

Still, no investment is without its rough patches, and I try to look at those plainly. Natural gas is a commodity, so prices can drop sharply when supply rises or demand softens, and that has hurt plenty of energy companies over the years. The five-year average return on equity was only 9.4 percent, which tells me the business does not always deliver high returns no matter how hard folks row. Inflation can also nibble away at real gains, as I noted decades ago. The company's own history shows that past growth rates are unlikely to repeat exactly, and market swings will keep affecting reported numbers, just as I mentioned in 1996. A moat score in the mid-60s is helpful but not impregnable, so any edge could narrow if competitors find cheaper ways to operate or if regulation tightens.

Looking ahead, EQT's position in a key producing region and its ability to gather and move the gas give it a foundation that could support decent cash generation for years if energy demand stays steady and the company keeps its costs in line. At a current price around $54.47 and a market value of about $34 billion, the stock trades at roughly 11.4 times recent earnings and 5.7 times EBITDA, with a price-to-book near 1.5 times. Those figures suggest you are not paying a steep premium for the earning power on display, provided the business can maintain something close to its recent returns without big surprises. I have always favored buying pieces of good businesses at sensible prices and then giving them time to compound, rather than chasing short-term moves. Patience has been the real edge for long-term owners who focus on intrinsic value over book value or headlines.

For those looking to act on this, the ticker for EQT Corporation on eToro is $EQT.