VZ

Verizon – A Snapshot of the Communications Giant

We've been asking ourselves recently if the market has placed a fair valuation on Verizon Communications. Let's dive into some of the fundamental values of this large-cap Telecommunications company to determine if there might be an opportunity here for value-minded investors.

The Market May Be Undervaluing Verizon Communications's Assets and Equity:

Verizon Communications Inc., through its subsidiaries, provides communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. The company belongs to the Telecommunications sector, which has an average price to earnings (P/E) ratio of 18.85 and an average price to book (P/B) ratio of 3.12. In contrast, Verizon Communications has a trailing 12 month P/E ratio of 6.6 and a P/B ratio of 1.47.

Verizon Communications's PEG ratio is 14.43, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.

Exceptional Profitability Overshadowed by Excessive Leverage:

2018-02-23 2019-02-15 2020-02-21 2021-02-25 2022-02-11 2023-02-10
Revenue (MM) $126,034 $130,863 $131,868 $128,292 $133,613 $136,835
Gross Margins 57.0% 57.0% 57.0% 60.0% 57.0% 56.0%
Operating Margins 22% 21% 23% 22% 24% 22%
Net Margins 24.0% 12.0% 15.0% 14.0% 17.0% 16.0%
Net Income (MM) $30,101 $15,528 $19,265 $17,801 $22,065 $21,256
Net Interest Expense (MM) -$4,733 -$4,833 -$4,730 -$4,247 -$3,485 -$3,613
Depreciation & Amort. (MM) -$16,954 -$17,403 -$16,682 -$16,720 -$16,206 -$17,099
Earnings Per Share $7.36 $3.76 $4.65 $4.3 $5.29 $5.12
EPS Growth n/a -48.91% 23.67% -7.53% 23.02% -3.21%
Diluted Shares (MM) 4,089 4,132 4,140 4,142 4,169 4,150
Free Cash Flow (MM) $42,148 $52,426 $54,583 $63,856 $107,421 $63,881
Capital Expenditures (MM) -$17,830 -$18,087 -$18,837 -$22,088 -$67,882 -$26,740
Net Current Assets (MM) -$182,543 -$175,483 -$191,419 -$192,615 -$246,668 -$249,360
Long Term Debt (MM) $113,642 $105,873 $100,712 $123,173 $143,425 $140,676
Net Debt / EBITDA 2.59 2.49 2.3 2.35 3.04 3.11

Verizon Communications has slimmer gross margins than its peers, declining EPS growth, and a highly leveraged balance sheet. On the other hand, the company has strong margins with a stable trend working in its favor. Furthermore, Verizon Communications has weak revenue growth and a flat capital expenditure trend and irregular cash flows.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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