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Verizon Communications Inc Valuation – February 2018 $VZ

Company Profile (obtained from Marketwatch): Verizon Communications, Inc. is a holding company, which engages in the provision of broadband and communication services. It operates through the following segments: Wireless and Wireline. The Wireless segment provides wireless voice and data services and equipment sales, which are provided to consumer, business, and government customers. The Wireline segment offers broadband video and data; corporate networking solutions; data center and cloud services; security and managed network services; and local and long distance voice services. Through its subsidiary, Oath, Inc. the company oversees a diverse house of more than 50 media and technology brands under Yahoo and AOL, engaging more than a billion people globally. The Oath portfolio includes HuffPost, Yahoo Sports, AOL.com, MAKERS, Tumblr, BUILD Studios, Yahoo Finance, Yahoo Mail and more, with an aim to build consumer-friendly brands. The company was founded on June 30, 2000 and is headquartered in New York, NY.

VZ Chart

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Downloadable PDF version of this valuation:

ModernGraham Valuation of VZ – February 2018

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 $200,259,753,323 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.91 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 311.24% Pass
6. Moderate PEmg Ratio PEmg < 20 10.71 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.66 Pass
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 0.91 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -36.38 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

EPSmg $4.58
MG Growth Estimate 15.00%
MG Value $176.41
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $66.44
MG Value based on 0% Growth $38.95
Market Implied Growth Rate 1.11%
Current Price $49.09
% of Intrinsic Value 27.83%

Verizon Communications Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the low current 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 feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $2.11 in 2014 to an estimated $4.58 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.11% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Verizon Communications Inc. revealed the company was trading above its Graham Number of $29.66. The company pays a dividend of $2.34 per share, for a yield of 4.8%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 10.71, which was below the industry average of 37.96, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-45.

Verizon Communications Inc. performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$45.00
Graham Number $29.66
PEmg 10.71
Current Ratio 0.91
PB Ratio 4.66
Current Dividend $2.34
Dividend Yield 4.76%
Number of Consecutive Years of Dividend Growth 11

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2017
Total Current Assets $29,913,000,000
Total Current Liabilities $33,037,000,000
Long-Term Debt $113,642,000,000
Total Assets $257,143,000,000
Intangible Assets $127,836,000,000
Total Liabilities $214,047,000,000
Shares Outstanding (Diluted Average) 4,092,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.70
Dec2017 $7.36
Dec2016 $3.21
Dec2015 $4.37
Dec2014 $2.42
Dec2013 $4.00
Dec2012 $0.31
Dec2011 $0.85
Dec2010 $0.90
Dec2009 $1.72
Dec2008 -$0.77
Dec2007 $1.90
Dec2006 $2.12
Dec2005 $2.65
Dec2004 $2.79
Dec2003 $1.12
Dec2002 $1.49
Dec2001 $0.14
Dec2000 $4.31
Dec1999 $2.97
Dec1998 $1.86

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $4.58
Dec2017 $4.77
Dec2016 $3.27
Dec2015 $3.00
Dec2014 $2.11
Dec2013 $1.82
Dec2012 $0.69
Dec2011 $0.89
Dec2010 $1.00
Dec2009 $1.21
Dec2008 $1.21
Dec2007 $2.18
Dec2006 $2.22
Dec2005 $2.06
Dec2004 $1.83
Dec2003 $1.57
Dec2002 $1.92

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

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Frontier Communications Corp Valuation – November 2015 Update $FTR
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Windstream Holdings Analysis – 2015 Update $WIN

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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