Verizon Communications Inc (VZ) Valuation

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Company Profile (obtained from Google Finance): Verizon Communications Inc. (Verizon) is a provider of communications services. The Company has two primary reportable segments: Domestic Wireless and Wireline. Domestic Wireless’s products and services include wireless voice, data services and other value-added services and equipment sales across the United States. Wireline’s communications services include voice, Internet access, broadband video and data, next generation Internet protocol (IP) network services, network access, long distance and other services. It provides these services to consumers, carriers, businesses and government customers both in the United States and internationally in 150 countries. In August 2008, Verizon announced that Verizon Wireless, a joint venture of the Company and Vodafone Group Plc, had completed its purchase of Rural Cellular Corporation, doing business as Unicel. In January 2009, Verizon Wireless completed its acquisition of Alltel Corporation from Atlantis Holdings LLC.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 3/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $28
• MG Opinion    Fairly Valued
• Value Based on 3% Growth    $30
• Value Based on 0% Growth    $18
• Market Implied Growth Rate    2.90%
• Net Current Asset Value (NCAV)    -$56.75
• PEmg    14.29
• Current Ratio    0.81
• PB Ratio    1.95

Key Data:

Balance Sheet – 9/30/2009

• Current Assets    $22,023,000,000
• Current Liabilities    $27,305,000,000
• Total Debt    $57,374,000,000
• Total Assets    $226,404,000,000
• Intangible Assets    $78,847,000,000
• Goodwill    $22,190,000,000
• Total Liabilities    $183,218,000,000
• Outstanding Shares    2,840,650,000

Earnings Per Share – Diluted

• 2009 (estimate)    $2.08
• 2008    $2.26
• 2007    $1.90
• 2006    $1.88
• 2005    $2.16
• 2004    $2.11
• 2003    $1.25
• 2002    $1.67
• 2001    $0.21
• 2000    $3.95
• 1999    $2.99

Earnings Per Share – Modern Graham

• 2009 (estimate)    $2.07
• 2008    $2.06
• 2007    $1.93
• 2006    $1.90
• 2005    $1.77
• 2004    $1.66

Valuation History:

• 11/2/09 – Value $28, Actual Price $29.59, Fairly Valued & Speculative
• 7/17/09 – Value $33, Actual Price $29.59, Fairly Valued & Speculative