It hasn't been a great afternoon session for Verizon Communications investors, who have watched their shares sink by -2.3% to a price of $39.74. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
The Market May Be Undervaluing Verizon Communications's Earnings and Assets:
Verizon Communications Inc., through its subsidiaries, engages in the provision of 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 23.78 and an average price to book (P/B) ratio of 3.46. In contrast, Verizon Communications has a trailing 12 month P/E ratio of 14.5 and a P/B ratio of 1.81.
Verizon Communications's PEG ratio is 6.04, 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.
Slight Revenue Growth but Not Enough Current Assets to Cover Current Liabilities:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $130,863 | $131,868 | $128,292 | $133,613 | $136,835 | $134,095 |
| Operating Margins | 17% | 23% | 22% | 24% | 22% | 22% |
| Net Margins | 12% | 15% | 14% | 17% | 16% | 16% |
| Net Income (M) | $15,528 | $19,265 | $17,801 | $22,065 | $21,256 | $20,896 |
| Net Interest Expense (M) | $4,833 | $4,730 | $4,247 | $3,485 | $3,613 | $5,030 |
| Depreciation & Amort. (M) | $17,403 | $16,682 | $16,720 | $16,206 | $17,099 | $17,326 |
| Diluted Shares (M) | 4,132 | 4,140 | 4,142 | 4,150 | 4,204 | 4,216 |
| Earnings Per Share | $3.76 | $4.65 | $4.3 | $5.32 | $5.06 | $4.96 |
| EPS Growth | n/a | 23.67% | -7.53% | 23.72% | -4.89% | -1.98% |
| Avg. Price | $40.57 | $47.21 | $48.98 | $48.98 | $47.48 | $39.62 |
| P/E Ratio | 10.79 | 10.13 | 11.39 | 9.21 | 9.38 | 7.99 |
| CAPEX (M) | $16,658 | $17,939 | $18,192 | $20,286 | $23,087 | $21,440 |
| EV / EBITDA | 6.95 | 6.46 | 6.67 | 7.05 | 7.09 | 6.33 |
| Total Debt (M) | $113,063 | $111,489 | $123,173 | $143,425 | $140,676 | $134,441 |
| Net Debt / EBITDA | 2.78 | 2.31 | 2.22 | 2.89 | 2.9 | 2.78 |
| Current Ratio | 0.91 | 0.84 | 1.38 | 0.78 | 0.75 | 0.68 |
Verizon Communications has weak revenue growth and increasing reinvestment in the business, decent operating margins with a stable trend, and positive EPS growth. However, the firm has not enough current assets to cover current liabilities because its current ratio is 0.68. Finally, we note that Verizon Communications has significant leverage levels.
