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Tuesday, January 16, 2018

Verizon Communications Inc Valuation – July 2016 $VZ


Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – July 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Verizon Communications Inc (VZ) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Verizon Communications Inc. (Verizon) is a holding company. The Company, through its subsidiaries, provides communications, information and entertainment products and services to consumers, businesses and governmental agencies. The Company offers voice, data and video services and solutions on its wireless and wireline networks. The Company’s segments include Wireless and Wireline. The Wireless segment offers communications products and services, including wireless voice and data services and equipment sales that are provided to consumer, business and government customers across the United States. The Wireline’s segment offers voice, data and video communications products and services, such as broadband video and data, corporate networking solutions, data center and cloud services, security and managed network services and local and long distance voice services. The Company provides these products and services to consumers as well as to carriers, businesses and government customers.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

Downloadable PDF version of this valuation:

ModernGraham Valuation of VZ – July 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $225,706,013,402 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.61 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 80.73% Pass
6. Moderate PEmg Ratio PEmg < 20 17.02 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.65 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.61 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -6.85 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

VZ value chart July 2016

EPSmg $3.22
MG Growth Estimate 15.00%
MG Value $124.10
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $46.74
MG Value based on 0% Growth $27.40
Market Implied Growth Rate 4.26%
Current Price $54.86
% of Intrinsic Value 44.21%

Verizon Communications Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.83 in 2012 to an estimated $3.22 for 2016. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.26% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.

Verizon Communications Inc. receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

VZ charts July 2016

Net Current Asset Value (NCAV) -$46.95
Graham Number $18.03
PEmg 17.02
Current Ratio 0.61
PB Ratio 11.65
Current Dividend $2.26
Dividend Yield 4.12%
Number of Consecutive Years of Dividend Growth 10

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $20,844,000,000
Total Current Liabilities $34,408,000,000
Long-Term Debt $92,922,000,000
Total Assets $231,870,000,000
Intangible Assets $119,797,000,000
Total Liabilities $212,626,000,000
Shares Outstanding (Diluted Average) 4,085,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.06
Dec2015 $4.37
Dec2014 $2.42
Dec2013 $4.00
Dec2012 $0.31
Dec2011 $0.85
Dec2010 $0.90
Dec2009 $1.29
Dec2008 $2.26
Dec2007 $1.90
Dec2006 $2.12
Dec2005 $2.65
Dec2004 $2.79
Dec2003 $1.11
Dec2002 $1.49
Dec2001 $0.14
Dec2000 $4.31
Dec1999 $2.65
Dec1998 $1.86
Dec1997 $1.56
Dec1996 $1.98

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $3.22
Dec2015 $3.00
Dec2014 $2.11
Dec2013 $1.79
Dec2012 $0.83
Dec2011 $1.21
Dec2010 $1.49
Dec2009 $1.87
Dec2008 $2.22
Dec2007 $2.17
Dec2006 $2.22
Dec2005 $2.06
Dec2004 $1.83
Dec2003 $1.55
Dec2002 $1.87
Dec2001 $2.08
Dec2000 $2.86

Recommended Reading:

Other ModernGraham posts about the company

23 Companies in the Spotlight This Week – 3/9/15
Verizon Communications Annual Valuation – 2015 $VZ
5 Most Overvalued Dow Components – February 2015
5 Most Overvalued Dow Components – January 2015
5 Most Overvalued Dow Components – December 2014

Other ModernGraham posts about related companies

AT&T Inc Valuation – July 2016 $T
Harris Corporation Valuation – February 2016 $HRS
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Frontier Communications Corp Valuation – November 2015 Update $FTR
Harris Corporation Analysis – September 2015 Update $HRS
Arris Group Inc. Analysis – Initial Coverage $ARRS
Level 3 Communications Inc. Analysis – Initial Coverage $LVLT
Windstream Holdings Analysis – 2015 Update $WIN
Harris Corporation Analysis – June 2015 Update $HRS
Harris Corporation Quarterly Valuation – March 2015 $HRS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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