Verizon Communications Inc.
NYSE: VZ
Student Investment Fund Stock Report
Analysts: Xi Cheng, Tanner McAndrew, Luke Thompson, and Daniel Wadsworth
Recommendation: Buy
Market Cap: $86.2 B
HIGHLIGHTS
 VZs subsidiary (Verizon Wireless) is the
world’s largest wireless service provide
 VZ is expanding its presence in wireline
services through an advance fiber optics
network service called FiOS
 VZ has experienced growth in revenue
over the past five years and is on pace for
an 11% increase in 2009
 VZ has a consistently increased its
dividend payout
 There is large potential growth and
development in the Telecom Industry
 VZ has competitive advantages in
distribution network and pipelines
 Early Adoption of 4G Network
 Ranked as top 1 wireless service provider
in annual consumer report
Recent Price: $32.69(12/1/2009)
Target Price: $47.11
Industry: Telecom Services
Sector: Technology
INVESTMENT THESIS
 Demand for and dependence upon wireless technology has
exhibited a strong upward trend which is expected to continue in
the future. Verizon is competitively positioned to take advantage of
this trend.
 Broadband service and the popularity of bundled services have
increased substantially. With Verizon’s recent investment in this
sector, the firm is expected to capture an increasing portion of
demand.
 VZ’s ability to successfully generate a strong ROIC, add economic
value, and further improve their dividend payout coming out of a
deep recession demonstrates the firm’s efficient operations and
strong market position.
FIVE-YEAR PRICE PERFORMANCE VS. S&P500
BUSINESS SUMMARY
Verizon Communications Inc. provides
communication services in the United States and
internationally. It operates in two segments,
Wireline and Domestic Wireless. The Wireline
segment provides voice, Internet access,
broadband video and data, next generation
Internet protocol (IP) network services, network
access, and long distance services to consumers,
carriers, businesses, and government customers.
It operates a fiber-to-the-premises (FTTP)
network under the FiOS service mark that offers
bandwidth, and designed to handle future
broadband and video applications. As of
December 31, 2008, this segment’s wireline
network included approximately 36,161,000
wireline access lines, 8,673,000 broadband
connections, and 1,918,000 FiOS TV customers.
The Domestic Wireless segment offers in
wireless voice and data products, and other
value-added services, as well as sells equipment.
This segment serves approximately 80 million
customers. The company was formerly known as
Bell Atlantic Corporation and changed its name
to Verizon Communications Inc. in June 2000.
VZ FINANCIAL STATISTICS
Strong and stable financial condition beyond major competitors
 Value Added Spread: ROIC over WACC
 Dividend Yield of 6.2%
 Relatively Safe Piotroski Scorecard
 Discounted cash flow analysis suggests the stock is undervalued
by as much as 37%
 Most competitors are overvalued or value destroyers
 Low correlation with other stocks in the Student Investment Fund
Student Investment Fund:
VZ
Business Segments
Domestic Wireless
(51% of 2008 sales revenue). VZ operates in the United States through Verizon Wireless, a joint venture
between VZ and Vodafone Group PLC. The firm provides wireless voice and data services to the largest
customer base in the United States. In its advertising, VZ claims to have the most reliable and largest network,
covering 99 of the top 100 most populated metropolitan areas (a claim supported by customer satisfaction
surveys). Revenue generated from this segment has become an increasingly larger proportion of aggregate
revenue. This benefits VZ in that the wireless segment offers much higher margins than wireline.
Wireline
(49% of 2008 total revenue). VZ provides voice, video, data services, internet access, and next generation IP
network services through it two strategic business units, Verizon Telecom and Verizon Business. Verizon
Telecom services primarily residential and small businesses in 28 states, and sales from this segment accounted
for 31% of aggregate 2008 revenue. Verizon Business provides services to larger business and government
clients, servicing 98% of the Fortune 500 companies, and sales from the segment generated 18% of aggregate
2008 revenue.
Revenue Breakdown:
The graph shows the revenue breakdown between wireline and wireless segments. There has been a shift from
the wireline to wireless segment, due to the shrinking demand for wireline service. The increase in wireless
revenue is driven by rising revenue in voice and data service. VZ’s goal is to be the market leader in providing
Student Investment Fund:
VZ
wireless voice and data communication services in the United States. In fact, the shift does not compress VZ’s
revenue, since wireless has higher gross margins than the wireline segment, offering better profitability. This
explains how Verizon Wireless has emerged as the industry-leading wireless service provider in the U.S. in
terms of operating income.
Macroeconomic Thesis
The analysis in this section describes our top-down approach in selecting VZ. Several macroeconomic
indicators are particularly relevant for the company and its industry.
Consumer Confidence
Consumer confidence increased in
the 2nd quarter of 2009, but decreased
again in the 3rd quarter. Many expect
that consumer confidence will
rebound in 2010, however. Despite
the economic slowdown and lower
consumer confidence, VZ’s sales
revenue grew at a rate of 4.2% in
2008. When consumer confidence
returns, VZ will have a more
conducive environment to grow its
revenue.
Consumer Confidence
120
100
80
60
40
49.5
20
0
2005
2006
2007
2008
2009
Capital Spending : Communication Due to a massive economy wide costcutting process, companies which
Equipment
were impacted by the economic
20
downturn spent less on
15
communication equipment such as
10
business software, wireless
5
networking equipment, and
0
‐5
telecommunication products.
‐10
However, declines in telecom
‐15
spending have remained at a steady
‐20
‐13%
plateau since the 2nd quarter of 2009.
‐25
‐30
Even though the trend is flat for the 3rd
2001 2002 2003 2004 2005 2006 2007 2008 2009
quarter, there is potential for the sector
to grow as the economy strengthens
and companies make efforts to catch up spending on communication equipment.
Units: % Chg. Yr. Ago
Business Spending on Communication Equipment
Student Investment Fund:
VZ
Telephone Service Usage Trend
Telephone Service Holders
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
89%
81% 79%
77%
16% 15%
Landline

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Cell/Mobile phone
VOIP
Telephone Service Users
75%
67%
2006
18%
9%
Multiples Landline
2007/2008
11% 14%
2% 1%
VoIP
Cell/Mobile phone
According to the Harris Poll on cell phone usage from 2006 to 2008, the amount of cell phone usage is
increasing and the amount of traditional landline phone usage is decreasing.
In the bar charts above, cell phone users are those who only use cell phones to make phone calls.
VoIP means voice-over Internet Protocol, a way to place phone calls through the Internet.
The increasing trend in the number of cell phone holders/users and the declining trend in the same for
landline holders/users indicate that the wireless segment is dynamic and promising.
VZ is currently well positioned in the wireless segment.




Demographic Profile - Cell Phone User Only
Telephone Service Holders
 Among the total cell phone users
indicated in red, people aged at 18-29 make
up nearly half (49%) of the market.
 Among the total VoIP and cell phone
users, people aged 18-29 represent nearly a
quarter (22%) of the market
60%
50%
49%
40%
30%
24%
22% 23%
20%
23%
13%
21%
11%
6%
10%
9%
0%
‐10%
18‐29
30‐39
Cell Phone (14%)
40‐49
50‐64
65 and over
VOIP & Cell Phone (6%)

VZ’s products and services are aimed at
this fast-growing, younger-age
demographic.
Student Investment Fund:
VZ
Consumer Reports
According to the annual survey of wireless customer satisfaction from Consumer Reports,Verizon was ranked
as the number one wireless provider in customer satisfaction with high quality products and service in highprofile markets. Its main competitor, AT&T was ranked last. This further supports our thesis that VZ is wellpositioned to further strengthen its leadership in the telecommunications sector.
Industry Trends
70.0%
Percent of U.S. Households with Internet Access
61.7%
60.0%
54.6%
50.5%
50.0%
50.8%
41.5%
40.0%
30.0%
26.2%
19.9%
18.6%
20.0%
9.1%
4.4%
10.0%
0.0%
1997
1998
2000
Internet Access
2001
2003
high‐Speed Access
2007
 A steadily increasing
demand for internet access and a
surging growth in demand for highspeed internet access will serve as a
catalyst for increasing the size of
Verizon’s market share and drive
sustainable revenue growth.
Student Investment Fund:
Consistent growth in cell
phone spending has outpaced
spending on wire line phone
services. Also important, an
increasing number of
consumers are relying solely
on cellular services to fulfill
their telecommunication
needs; 20.2% of U.S.
households were wirelessonly in June-09 compared to
7.7% in Jun-05.
Total Telephone Demand
$100
$90
Cell Phone Demand $96 Billion
$80
$70
Billions

VZ
$60
$50
Local Phone Demand $49 Billion
$40
$30
$20
$10
Mar‐09
May‐08
Jul‐07
Sep‐06
Nov‐05
Jan‐05
Mar‐04
May‐03
Jul‐02
Sep‐01
Nov‐00
Jan‐00
Mar‐99
May‐98
Jul‐97
Sep‐96
Nov‐95
Jan‐95
$0
Business Strategy and Positioning
VZ aims to position the company for sustainable, long-term profitability by directing capital spending primarily
toward higher growth markets such as high-speed wireless data services, fiber optics to premises, and expanded
services to enterprise customers.
The main company goal is to be the market leader in wireless voice and data communication services in the US.
With the Acquisition of Alltell Corporation in January 2009, VZ became the largest wireless provider in the
U.S. as measured by the total number of customers. Additionally, in wireline, the VZ goal is to become the
leading broadband provider in every market in which the company operates.
Service Quality
VZ prioritizes customer service and aims to be the leading company in every market served. The company
views superior product offerings and customer service experiences as a competitive differentiator and a catalyst
for growing revenues and gaining market share.
Student Investment Fund:
VZ
Coverage Network
 As recently as the fourth
quarter of 2008, third party
studies suggest that Verizon had
the fewest dropped calls and
ineffective phone call attempts
among national wireless service
providers.
 In its recent marketing
campaign, VZ illustrates its
superior coverage of its Third
Generation (3G) data network
compared to its main competitor.
The advantage is undeniable.
Further, VZ plans to launch its 4G
network in 2010, at least one year
prior to that of the competitor.
Product Offerings



Most recently VZ has made efforts to pit its
newest smart phone offering from Motorola,
the Droid, directly against the phenomenally
popular smart phone exclusive to its main
competitor, the iPhone.
VZ and Motorola were aided by Google, who
contributed to design of the Droid and granted
the device the privilege of debuting the 2.0
version of the Android Operating System.
Android’s open source code orientation is
expected to give the phone an advantage over
the iPhone in terms of the number of smart
phone applications ultimately available. It
also offers free turn by turn global positioning
service through Google.
The Droid was launched November 6, 2009 with a strong buzz marketing campaign. Although it is too
early for Droid sales figures to be available for comparisons, VZ’s stock price has risen in the recent
weeks.
VZ creates value for shareowners by investing cash flows generated by business in opportunities and
transactions that support the aforementioned strategic imperatives, thereby increasing customer satisfaction and
usage of VZ products and services.
Student Investment Fund:
VZ
Valuation
Discounted Cash Flow Valuation. Based upon a thorough DCF model using conservative assumptions VZ
shares currently possess a fair value of $46.08 with a 12-month target price of $47.11. VZ’s closing price on
December 1, 2009 was $32.69. Key assumptions used in the modeling process are outlined below and
illustrated more extensively in Appendix B.
Assumptions
Revenue. Revenue is forecasted using an annual growth rate on a year-by-year basis. Revenue is projected to
grow by 1% in 2009 and 3% per year thereafter. The historic five year compounded average growth in revenue
was 10.3% and VZ is on track to experience growth of 11% in 2009.
COGS. Cost of goods sold is forecasted as a percentage of sales. Historically, COGS has averaged 37.8% over
the past five year. COGS is projected to be 39.5% of sales throughout forecasted years to represent the
possibility of higher future wireless network equipment and servicing costs.
SG&A. Selling and General Administrative expense has averaged 28.2% of sales over the past five years. It is
forecasted to be 27.9% of sales into the future continue cost efficiencies recognized in the most recent years of
operation.
Diluted Share Growth. Share growth is assumed to decline at an annual rate of 0.5%. This compares to a five
year average compounded growth of 0.2%, but is representative of a diminutive share buyback plan that was
adopted in 2008.
Dividend Growth. Dividend growth is forecasted on a year-by-year basis to more accurately reflect the current
economic condition within which the firm operates. Growth is forecasted to average 1.8% annually over
forecasted years which compares to the annual compounded average growth of 4.4% over the previous five
years.
Property Plant and Equipment. PPE is modeled on a year-by-year basis as a percentage of sales. It has
averaged 98.3% of sales over the past five years, however, PPE was 88.9% of sales at the end of 2008. PPE is
assumed to be 90% in 2009 and slowly increase to 91.5% in 2018.
WACC. Using the Capital Asset Pricing Model with a beta of 0.9, risk free rate of 4.25%, and market risk
premium of 6%, VZ’s weighted average cost of capital is calculated to be 7.86%. The beta of the firm was set to
a considerably higher level when compared to a group of analyst’s estimates as well our linear regression
analysis, both of which approximate a beta of 0.6.
Model Results
Margins. VZ is projected to maintain slightly lower profit margins throughout the forecasted years when
compared to historic margins. These lower margins are brought by the conservative assumptions used
throughout the modeling process. Historically Gross, Operating, in Net margins over the last five years
Student Investment Fund:
VZ
averaged 62.2%, 16.8%, and 7.3% respectively. This compares to the forecasted average gross, operating, and
net margins of 60.5%, 17.8%, and 5.7% respectively.
ROA. Return on Assets over the forecasted years is projected to average 2.7% annually. This compares to the
average of 3.7% between 2004 and 2008. The discrepancy between historical and forecasted ROA is again due
to our conservative modeling approach as it pertains to the firm’s PPE and estimated revenue growth.
ROE. Return on Equity is estimated to average 14.2% between 2009 and 2018 which is slightly lower than the
average of 15.7% between 2004 and 2008.
ROIC. VZ’s Return on Invested Capital is projected to average 12.2% annually throughout the forecasted
period. When compared to the firms WACC of 7.86% it is evident that VZ is making efficient use of capital in
its project selection and operations.
EVA and MVA. Economic Value has consistently been added over the prior five years, a trend that is
forecasted to continue with an annual average EVA of $4.7 million through 2019. The DCF analysis indicates
that VZ will also continue to add market value into the future with $14.1 billion value added between 2009 and
2019.
Free Cash Flow. Acquisitions over the last few years have adversely impacted the firms PPE account and
consequently skewed FCF, however, VZ has still generated appealing FCF. It is forecasted that the firm will
generate strong FCF through 2019 at an annual average of $10.6 million.
Per Share Valuation. The DCF analysis
suggests that the per share intrinsic value of
VZ is $46.08 in 2009 and $47.11 in 2010. The
52-week trading price has been between a low
of $26.10 and high of $34.90. Considering the
recent close price of $32.69 on December 1,
2009, a share of VZ stock is currently
undervalued by approximately 41%.
Multiples Valuation. In an expanded
valuation process historic multiples were used
to estimate the future per-share price of the
firm’s stock. The results of this analysis range
from VZ’s shares being fairly valued to
significantly undervalued. The per-share
intrinsic values calculated through our DCF analysis fall in between the estimates provided by our multiples
analysis.
Student Investment Fund:
VZ
Insider Trading
Insiders to VZ demonstrated a
strong selloff leading into the
recession during early 2007.
The selloff slowed in 2008 and
has reverted during 2009
signifying that insiders are
regaining confidence in VZ’s
abilities to exploit the
continuing trends and strong
demand seen in the industry.
Risks
Unfavorable general economic conditions, such as a recession or economic slowdown, could negatively affect
the affordability of and demand for some of Verizon’s products and services. In difficult economic conditions,
consumers may seek to reduce discretionary spending by forgoing purchases on higher margin services or
obtaining products and services under lower cost programs offered by other companies. In addition, an
unfavorable economic environment could cause adverse changes in the credit markets, increasing borrowing
costs and the availability of financing.
Verizon faces significant competition that may reduce market share and lower profits. The rapid development
of new technologies, services and products has eliminated the traditional distinction among services and
brought new competitors to the market. Among these new competitors are other telephone companies, cable
companies, wireless service providers, satellite providers, and electric utilities.
Changes in the regulatory framework, under which Verizon operates, could adversely affect their business
prospects or results of operations. Verizon’s domestic operations are subject to regulation by the FCC and other
federal, state, and local agencies. These regulatory regimes frequently restrict Verizon’s ability to operate in or
provide specified products and services in designated areas. For example, the FCC grants wireless licenses for
terms generally lasting 10 years that are subject to renewal, and there is no guarantee that the licenses will be
renewed.
Student Investment Fund:
VZ
Ownership
Institutions and mutual funds owned 59% of VZ’s shares as of December 1, 2009. Top holders of the firm’s
equity are summarized below:
TOP INSTITUTIONAL HOLDERS
Shares
130,697,900
119,735,030
111,147,212
102,150,960
97,075,953
47,044,916
42,619,202
38,998,994
36,130,065
32,736,535
% Out
4.6
4.22
3.91
3.6
3.42
1.66
1.5
1.37
1.27
1.15
Value*
$3,956,225,433
$3,624,379,358
$3,364,426,107
$3,092,109,559
$2,938,489,097
$1,424,049,607
$1,309,688,077
$1,180,499,548
$1,093,657,067
$990,934,914
Reported
30-Sep-09
30-Sep-09
30-Sep-09
30-Sep-09
30-Sep-09
30-Sep-09
30-Jun-09
30-Sep-09
30-Sep-09
30-Sep-09
TOP MUTUAL FUND HOLDERS
Holder
Shares
WASHINGTON MUTUAL INVESTORS FUND
60,030,000
CAPITAL INCOME BUILDER, INC.
56,853,000
INCOME FUND OF AMERICA INC
42,935,600
VANGUARD 500 INDEX FUND
27,242,545
INVESTMENT COMPANY OF AMERICA
27,190,400
VANGUARD TOTAL STOCK MARKET INDEX FUND
26,289,525
SPDR TRUST SERIES 1
26,009,308
VANGUARD INSTITUTIONAL INDEX FUND-INSTITUTIONAL INDEX FD
19,395,867
CAPITAL WORLD GROWTH AND INCOME FUND
17,639,600
VANGUARD/WINDSOR II
16,584,854
% Out
2.11
2
1.51
0.96
0.96
0.93
0.92
0.68
0.62
0.58
Value
$1,817,108,100
$1,747,092,690
$1,319,410,988
$837,163,407
$823,053,408
$807,877,103
$834,638,693
$596,034,992
$542,064,908
$531,876,267
Reported
30-Sep-09
30-Jun-09
30-Jun-09
30-Jun-09
30-Sep-09
30-Jun-09
30-Sep-08
30-Jun-09
30-Jun-09
31-Jul-09
Holder
Capital World Investors
Barclays Global Investors UK Holdings Ltd
Capital Research Global Investors
STATE STREET CORPORATION
VANGUARD GROUP, INC. (THE)
FMR LLC
NORTHERN TRUST CORPORATION
MORGAN STANLEY
JP MORGAN CHASE & COMPANY
Bank of New York Mellon Corporation
Recommendation
Following a comprehensive analysis, VZ earns a “BUY” recommendation. Factors supporting this
recommendation follow:




Strong demand for wireless and bundled broadband services continues to increase.
VZ is strategically positioned to increase its share of these growing margins and has demonstrated its
ability to do so.
A healthy ROIC has been maintained historically and is expected to remain at a sizable spread to the
firm’s WACC in the future.
Demonstration of a strong historical pattern of consistently increasing dividends over the past 20 years.
Strong projected growth in FCF, EPS, and healthy ROICs are expected to support this dividend policy
into the future.
Verizon Technical Appendix, Page 1 of 8
A
B
C
D
E
1
2
Enter Firm Ticker
3
4
F
G
H
I
J
K
L
M
N
Forecasted income statement items are based on 5 years of historical average ratios unless a value is entered in
the manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether
the historical average is truly representative of what the firm can achieve in the future.
VZ
5
Historical Income Statements
6
7
Enter first financial statement year in cell B6
Forecasting Percentages
2004
2005
2006
2007
2008
2004
8
9
Total revenue
Cost of goods sold
65,751
22,032
69,518
24,409
88,182
35,309
93,469
37,547
97,354
39,007
10
Gross profit
43,719
45,109
52,873
55,922
58,347
Revenue Growth
COGS % of Sales
2005
2006
2007
2008
Average
33.5%
5.7%
35.1%
26.8%
40.0%
6.0%
40.2%
4.2%
40.1%
10.3%
37.8%
Manual
39.5%
11
12
SG&A expense
Research & Development
19,346
0
19,443
0
24,955
0
25,967
0
26,898
0
SG&A % of Sales
R&D % of Sales
29.4%
0.0%
28.0%
0.0%
28.3%
0.0%
27.8%
0.0%
27.6%
0.0%
28.2%
0.0%
27.9%
13
Depreciation/Amortization
13,503
13,615
14,545
14,377
14,565
D&A % of Sales
20.5%
19.6%
16.5%
15.4%
15.0%
17.4%
15.0%
14
Interest expense (income), operating
0
0
0
0
0
Inc. Exp. Oper.
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
15
Non-recurring expenses
0
0
0
0
Exp. Non-rec
0.0%
-0.8%
0.0%
0.0%
0.0%
-0.2%
16
Other operating expenses
0
0
0
0
0
Other exp.
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
10,870
12,581
13,373
15,578
16,884
17
Operating Income
18
Interest income (expense), non-operating
19
20
Gain (loss) on sale of assets
Other income, net
21
22
Income before tax
Income tax
0
(530)
0
0
0
0
0
(2,893)
0
(4,133)
0
(5,219)
0
(6,086)
0
(7,125)
7,977
8,448
8,154
9,492
9,759
2,078
2,421
2,674
3,982
3,331
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Gain (loss) asset sales
Other income, net
Int. inc. non-oper.
0.0%
-4.4%
0.0%
-5.9%
0.0%
-5.9%
0.0%
-6.5%
0.0%
-7.3%
0.0%
-6.0%
Tax rate
26.0%
28.7%
32.8%
42.0%
34.1%
32.7%
23
Income after tax
5,899
6,027
5,480
5,510
6,428
24
Minority interest
0
0
0
0
0
Minority interest
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
25
26
Equity in affiliates
U.S. GAAP adjustment
0
0
0
0
0
0
0
0
0
0
Equity in affiliates
U.S. GAAP adjust.
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
5,899
6,027
5,480
5,510
6,428
1,932
1,370
717
11
0
7,831
7,397
6,197
5,521
6,428
27
28
Net income before extraordinary items
Extraordinary items, total
29
Net income
30
Total adjustments to net income
31
Basic weighted average shares
32
Basic EPS excluding extraordinary items
33
Basic EPS including extraordinary items
34
Diluted weighted average shares
35
0
0
0
0
0
2,770
2,766
2,912
2,898
2,849
2.13
2.18
1.88
1.90
2.26
2.83
2.67
2.13
1.91
2.26
2,831
2,817
2,938
2,902
2,850
Diluted EPS excluding extraordinary items
2.08
2.14
1.87
1.90
2.26
36
Diluted EPS including extraordinary items
2.77
2.63
2.11
1.90
2.26
37
Dividends per share -- common stock
1.54
1.62
1.64
1.67
1.78
38
Gross dividends -- common stock
4,265
4,479
4,781
4,830
5,062
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
Retained earnings
3,566
2,918
1,416
691
1,366
Data Source: Thomson/Reuters
Extrordinary items
Too Unpredictable to forecast, so set to zero in forecasts
Adjustments to NI
Too Unpredictable to forecast, so set to zero in forecasts
Share growth
-0.1%
5.3%
-0.5%
-1.7%
0.7%
Diluted share growth
-0.5%
4.3%
-1.2%
-1.8%
0.2%
Dividend growth
5.0%
6.7%
1.0%
4.8%
4.4%
34.0%
-0.5%
Verizon Technical Appendix, Page 2 of 8
O
P
Q
R
S
T
U
V
W
X
Y
Z
1
2
Revenues grow at the same rate each year unless a growth value is manually entered in the cell above the forecast year, in which case the year-by-year value
overrides the historical or manual average. It makes sense to start tapering the growth forecasts 5 or 6 years into the forecast period.
3
4
Year-by-year dividend growth
3.00%
2.50%
2.00%
2.00%
2.00%
1.50%
1.50%
1.50%
1.00%
1.00%
5
Year-by-year revenue growth
1.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
Forecasted Income Statements -- 10 Years
6
7
year
8
9
Total revenue
Cost of goods sold
10
Gross profit
2009E
98,328
38,839
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
101,277
40,005
104,316
41,205
107,445
42,441
110,669
43,714
113,989
45,025
117,408
46,376
120,930
47,768
124,558
49,201
128,295
50,677
59,488
61,273
63,111
65,004
66,954
68,963
71,032
73,163
75,358
77,619
11
12
SG&A expense
Research & Development
27,433
0
28,256
0
29,104
0
29,977
0
30,877
0
31,803
0
32,757
0
33,740
0
34,752
0
35,794
0
13
Depreciation/Amortization
14,749
15,192
15,647
16,117
16,600
17,098
17,611
18,140
18,684
19,244
14
Interest expense (income), operating
0
0
0
0
0
0
0
0
0
15
Non-recurring expenses
16
17
Other operating expenses
Operating Income
(150)
(154)
(159)
(164)
(169)
(174)
(179)
(184)
(190)
0
(196)
0
0
0
0
0
0
0
0
0
0
17,456
17,979
18,519
19,074
19,646
20,236
20,843
21,468
22,112
22,776
18
Interest income (expense), non-operating
(2,774)
(2,903)
(3,035)
(3,168)
(3,304)
(3,520)
(3,661)
(3,802)
(3,941)
(4,122)
19
20
Gain (loss) on sale of assets
Other income, net
0
(5,918)
0
(6,096)
0
(6,278)
0
(6,467)
0
(6,661)
0
(6,861)
0
(7,066)
0
(7,278)
0
(7,497)
0
(7,722)
8,763
8,980
9,205
9,439
9,682
9,855
10,115
10,387
10,674
10,932
2,980
3,053
3,130
3,209
3,292
3,351
3,439
3,532
3,629
3,717
21
22
Income before tax
Income tax
23
Income after tax
5,784
5,927
6,076
6,230
6,390
6,505
6,676
6,856
7,045
7,215
24
Minority interest
0
0
0
0
0
0
0
0
0
0
25
26
Equity in affiliates
U.S. GAAP adjustment
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
5,784
5,927
6,076
6,230
6,390
6,505
6,676
6,856
7,045
7,215
0
0
0
0
0
0
0
0
0
0
5,784
5,927
6,076
6,230
6,390
6,505
6,676
6,856
7,045
7,215
27
28
Net income before extraordinary items
Extraordinary items, total
29
Net income
30
Total adjustments to net income
31
Basic weighted average shares
32
33
34
Diluted weighted average shares
35
36
0
0
0
0
0
0
0
0
0
0
2,869
2,889
2,910
2,930
2,951
2,972
2,993
3,014
3,035
3,056
Basic EPS excluding extraordinary items
2.02
2.05
2.09
2.13
2.17
2.19
2.23
2.27
2.32
2.36
Basic EPS including extraordinary items
2.02
2.05
2.09
2.13
2.17
2.19
2.23
2.27
2.32
2.36
2,836
2,822
2,807
2,793
2,779
2,766
2,752
2,738
2,724
2,711
Diluted EPS excluding extraordinary items
2.04
2.10
2.16
2.23
2.30
2.35
2.43
2.50
2.59
2.66
Diluted EPS including extraordinary items
2.04
2.10
2.16
2.23
2.30
2.35
2.43
2.50
2.59
2.66
37
Dividends per share -- common stock
1.82
1.85
1.87
1.90
1.92
1.94
1.95
1.97
1.97
1.98
38
Gross dividends -- common stock
5,214
5,344
5,451
5,560
5,671
5,756
5,843
5,930
5,990
6,050
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
Retained earnings
570
583
624
670
718
748
833
925
1,055
1,166
Verizon Technical Appendix, Page 3 of 8
AA
AB
AC
AD
AE
1
2
Enter Firm Ticker
3
4
AF
AG
AH
AI
AJ
AK
AL
AM
AN
Forecasted balance sheet items are based on 5 years of historical average ratios unless a value is entered in the
manual cell, in which case the manual entry overrides the historical average. The idea is to consider whether the
historical average is truly representative of what the firm can achieve in the future.
VZ
5
Historical Balance Sheets
6
7
year
2004
Forecasting Percentages
2005
2006
2007
2008
2004
2005
2006
2007
2008
Average
8
9
Assets
Cash & equivalents
2,290
760
3,219
1,153
9,782
Cash % of Sales
3.5%
1.1%
3.7%
1.2%
10.0%
10
Short term investments
2,257
2,146
2,434
2,244
509
ST Invest. % of Sales
3.4%
3.1%
2.8%
2.4%
0.5%
2.4%
11
12
Receivables, total
Inventory, total
9,801
1,535
8,534
1,522
10,891
1,514
11,736
1,729
11,703
2,092
Receivables % Sales
Inventory % of Sales
14.9%
2.3%
12.3%
2.2%
12.4%
1.7%
12.6%
1.8%
12.0%
2.1%
12.8%
2.0%
13
Prepaid expenses
2,646
2,125
1,888
1,836
1,989
Pre. Exp. % of Sales
4.0%
3.1%
2.1%
2.0%
2.0%
2.6%
14
Other current assets, total
950
4,233
2,592
0
0
Other CA % of Sales
1.4%
6.1%
2.9%
0.0%
0.0%
2.1%
19,479
19,320
22,538
18,698
26,075
74,124
72,987
82,356
85,294
86,546
Net PPE % of Sales
112.7%
105.0%
93.4%
91.3%
88.9%
98.3%
837
315
5,655
5,245
6,035
Goodwill % of Sales
1.3%
0.5%
6.4%
5.6%
6.2%
4.0%
46,611
51,849
56,099
55,784
67,173
Intangibles % of Sales
70.9%
74.6%
63.6%
59.7%
69.0%
67.6%
15
Total Current Assets
3.9%
16
Property, plant and equipment (net)
17
Goodwill
18
Intangibles
19
20
Long term investments
Notes receivable -- long term
5,855
0
4,602
0
4,868
0
3,372
0
8,174
0
LT Invest. % of Sales
Notes Rec. % of Sales
8.9%
0.0%
6.6%
0.0%
5.5%
0.0%
3.6%
0.0%
8.4%
0.0%
6.6%
0.0%
21
Other long term assets, total
19,052
19,057
17,288
18,566
8,349
Other LT ass. % Sales
29.0%
27.4%
19.6%
19.9%
8.6%
20.9%
22
Other assets, total
0
0
0
0
0
Other assets % Sales
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
165,958
168,130
188,804
186,959
202,352
23
24
Total assets
Accounts payable
Payable/accrued
2,827
0
2,620
0
4,392
0
4,491
0
3,856
0
Acc. Payable % Sales
Pay/accured % Sales
4.3%
0.0%
3.8%
0.0%
5.0%
0.0%
4.8%
0.0%
4.0%
0.0%
4.4%
0.0%
27
Accrued expenses
7,024
6,643
7,171
7,701
7,822
Acc. Exp. % of Sales
10.7%
9.6%
8.1%
8.2%
8.0%
8.9%
28
Notes payable/short term debt
0
0
3,576
390
1,487
Notes payable % Sales
0.0%
0.0%
4.1%
0.4%
1.5%
1.2%
29
Current portion of LT debt/Capital leases
3,593
6,688
4,139
2,564
3,506
Curr. debt % of Sales
5.5%
9.6%
4.7%
2.7%
3.6%
5.2%
Other curr liab % Sales
14.7%
15.5%
14.7%
10.3%
9.5%
12.9%
30
Other current liabilities
9,685
10,749
13,002
9,595
9,235
31
Total Current Liabilities
23,129
26,700
32,280
24,741
25,906
32
Long term debt, total
35,674
31,569
28,646
28,203
46,959
LT debt % of Sales
33
Deferred income tax
22,532
22,831
16,270
14,784
11,769
Def. inc. tax % Sales
34.3%
32.8%
18.5%
15.8%
12.1%
34
Minority interest
25,053
26,433
28,337
32,288
37,199
Min. Int. % of Sales
38.1%
38.0%
32.1%
34.5%
38.2%
36.2%
35
Other liabilities, total
22,010
20,917
34,736
36,362
38,813
Other liab. % of Sales
33.5%
30.1%
39.4%
38.9%
39.9%
36.3%
160,646
128,398
128,450
140,269
136,378
37
Preferred stock (redeemable)
0
0
0
0
0
38
Preferred stock (unredeemable)
0
0
0
0
0
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
6.0%
14.0%
Liabilities and Shareholders' Equity
25
26
36
Manual
Total Liabilities
Common stock
Additonal paid-in capital
Retained earnings (accumluated deficit)
Treasury stock -- common
ESOP Debt Guarantee
Other equity, total
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
Diluted weighted average shares
Total preferred shares outstanding
277
25,404
12,984
(142)
90
(1,053)
37,560
165,958
2,831
0
277
25,369
15,905
(353)
265
(1,783)
39,680
168,130
2,817
0
297
40,124
17,324
(1,871)
191
(7,530)
48,535
188,804
2,938
0
297
40,316
17,884
(3,489)
79
(4,506)
50,581
186,959
2,902
0
297
40,291
19,250
(4,839)
79
(13,372)
41,706
202,352
2,850
0
10.5%
LT debt is manually adjustedfor AFN inthepro formas
22.7%
Set to last historical year's level throughout the forecast.
Set to last historical year's level throughout the forecast.
The model uses the more conservative diluted common shares
number for total shares outstanding.
Diluted share growth
Preferred share growth
-0.5%
N/A
4.3%
N/A
-1.2%
N/A
-1.8%
N/A
0.2%
N/A
-0.5%
0.0%
Verizon Technical Appendix, Page 4 of 8
AO
1
2
AP
AQ
AR
AS
AT
AU
AV
AW
AX
AY
AZ
Model maintains a fixed ratio of ST debt/sales. LT debt is adjusted for shortfalls/surpluses of AFN. Every time something changes that affects the forecasts, set row 49
entries to zero and use Goal Seek to set row 48 AFN to zero by adjusting row 49 . (Write a macro to b alance all 10 years at once). If you want to issue common stock in
3
4
5
PPE/Sales
90.00%
6
90.00%
90.00%
90.00%
90.00%
91.00%
91.00%
91.00%
91.00%
91.50%
Forecasted Balance Sheets -- 10 Years
7
year
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
8
9
Assets
Cash & equivalents
3,836
3,951
4,070
4,192
4,318
4,447
4,581
4,718
4,860
5,006
10
Short term investments
2,400
2,472
2,546
2,622
2,701
2,782
2,866
2,952
3,040
3,131
11
12
Receivables, total
Inventory, total
12,608
2,014
12,986
2,074
13,375
2,136
13,777
2,200
14,190
2,266
14,616
2,334
15,054
2,404
15,506
2,477
15,971
2,551
16,450
2,627
13
Prepaid expenses
2,602
2,680
2,760
2,843
2,928
3,016
3,106
3,200
3,296
3,395
14
Other current assets, total
2,060
2,121
2,185
2,251
2,318
2,388
2,459
2,533
2,609
2,687
25,519
26,284
27,073
27,885
28,721
29,583
30,471
31,385
32,326
33,296
88,495
91,150
93,884
96,701
99,602
103,730
106,841
110,047
113,348
117,390
5,900
6,077
6,259
6,447
6,640
6,839
7,044
7,256
7,474
7,698
66,424
68,417
70,470
72,584
74,761
77,004
79,314
81,694
84,145
86,669
15
Total Current Assets
16
Property, plant and equipment (net)
17
Goodwill
18
Intangibles
19
20
Long term investments
Notes receivable -- long term
6,499
0
6,694
0
6,895
0
7,102
0
7,315
0
7,534
0
7,760
0
7,993
0
8,233
0
8,480
0
21
Other long term assets, total
13,766
14,179
14,604
15,042
15,494
15,958
16,437
16,930
17,438
17,961
22
Other assets, total
0
0
0
0
0
0
0
0
0
0
206,603
212,801
219,185
225,760
232,533
240,649
247,868
255,305
262,964
271,494
4,290
0
4,419
0
4,551
0
4,688
0
4,828
0
4,973
0
5,122
0
5,276
0
5,434
0
5,597
0
11,455
23
24
Total assets
Liabilities and Shareholders' Equity
25
26
Accounts payable
Payable/accrued
27
Accrued expenses
8,780
9,043
9,314
9,594
9,881
10,178
10,483
10,798
11,122
28
Notes payable/short term debt
1,180
1,215
1,252
1,289
1,328
1,368
1,409
1,451
1,495
1,540
29
Current portion of LT debt/Capital leases
5,137
5,291
5,450
5,614
5,782
5,955
6,134
6,318
6,508
6,703
13,471
30
Other current liabilities
10,324
10,634
10,953
11,282
11,620
11,969
12,328
12,698
13,079
31
Total Current Liabilities
29,711
30,602
31,520
32,466
33,440
34,443
35,477
36,541
37,637
38,766
32
Long term debt, total
40,967
42,882
44,829
46,809
48,819
52,022
54,118
56,210
58,262
60,938
33
Deferred income tax
22,314
22,983
23,673
24,383
25,114
25,868
26,644
27,443
28,267
29,115
34
Minority interest
35,597
36,665
37,765
38,898
40,065
41,267
42,505
43,780
45,094
46,447
35
36
Other liabilities, total
Total Liabilities
35,737
36,809
37,914
39,051
40,223
41,429
42,672
43,952
45,271
46,629
164,327
169,942
175,701
181,607
187,662
195,029
201,416
207,926
214,530
221,895
0
37
Preferred stock (redeemable)
0
0
0
0
0
0
0
0
0
38
Preferred stock (unredeemable)
0
0
0
0
0
0
0
0
0
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
Common stock
Additonal paid-in capital
Retained earnings (accumluated deficit)
Treasury stock -- common
ESOP Debt Guarantee
Other equity, total
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
Total common shares (diluted)
Total preferred shares outstanding
AFN (interactive with 3 items below)
Adjustment to LT Debt (iterate or use Goal Seek
Issue Common Stock to Fund AFN
Set Balance Sheet Cash Lower to Fund AFN
297
40,291
19,820
(4,839)
79
(13,372)
42,276
206,603
2,836
0
0.0
(5,991.9)
297
40,291
20,403
(4,839)
79
(13,372)
42,859
212,801
2,822
0
0.0
1,914.5
297
40,291
21,027
(4,839)
79
(13,372)
43,483
219,185
2,807
0
0.0
1,947.7
297
40,291
21,697
(4,839)
79
(13,372)
44,153
225,760
2,793
0
0.0
1,979.8
297
40,291
22,415
(4,839)
79
(13,372)
44,871
232,533
2,779
0
0.0
2,010.4
297
40,291
23,164
(4,839)
79
(13,372)
45,620
240,649
2,766
0
0.0
3,202.4
297
40,291
23,997
(4,839)
79
(13,372)
46,453
247,868
2,752
0
0.0
2,095.9
297
40,291
24,922
(4,839)
79
(13,372)
47,378
255,305
2,738
0
0.0
2,091.9
297
40,291
25,978
(4,839)
79
(13,372)
48,434
262,964
2,724
0
0.0
2,052.2
0
297
40,291
27,143
(4,839)
79
(13,372)
49,599
271,494
2,711
0
0.0
2,676.6
Verizon Technical Appendix, Page 5 of 8
BA
1
2
Enter Firm Ticker
BB
VZ
BC
BD
BE
BF
BG
BH
BI
BJ
2005
2006
2007
2008
2009E
2010E
2011E
values in millions
Historical Ratios and Valuation Model
3
4
2004
5
BK
BL
BM
BN
BO
BP
2016E
2017E
2018E
Forecasted Ratios and Valuation Model -- 10 Years
2012E
2013E
2014E
2015E
6 Liquidity
7
Current
8
9
Quick
Net Working Capital to Total Assets
0.84
0.72
0.70
0.76
1.01
0.86
0.86
0.86
0.86
0.86
0.86
0.86
0.86
0.86
0.86
0.78
(0.02)
0.67
(0.04)
0.65
(0.05)
0.69
(0.03)
0.93
0.00
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
0.79
(0.02)
54.41
42.83
44.81
45.68
45.08
58.24
45.83
54.06
43.88
46.54
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
46.80
48.83
10 Asset Management
11
12
Days Sales Outstanding
Inventory Turnover
13
Fixed Assets Turnover
0.89
0.95
1.07
1.10
1.12
1.11
1.11
1.11
1.11
1.11
1.10
1.10
1.10
1.10
1.09
14
Total Assets Turnover
0.40
0.41
0.47
0.50
0.48
0.48
0.48
0.48
0.48
0.48
0.47
0.47
0.47
0.47
0.47
15 Debt Management
16
Long-Term Debt to Equity
95.0%
79.6%
59.0%
55.8%
112.6%
96.9%
100.1%
103.1%
106.0%
108.8%
114.0%
116.5%
118.6%
120.3%
122.9%
17
Total Debt to Total Assets
21.5%
18.8%
17.1%
15.3%
23.9%
20.4%
20.7%
21.0%
21.3%
21.6%
22.2%
22.4%
22.6%
22.7%
23.0%
18
Times Interest Earned
N/A
N/A
N/A
N/A
N/A
6.3
6.2
6.1
6.0
5.9
5.7
5.7
5.6
5.6
5.5
19 Profitability
20
Gross Profit Margin
66.5%
64.9%
60.0%
59.8%
59.9%
60.5%
60.5%
60.5%
60.5%
60.5%
60.5%
60.5%
60.5%
60.5%
60.5%
21
Operating Profit Margin
16.5%
18.1%
15.2%
16.7%
17.3%
17.8%
17.8%
17.8%
17.8%
17.8%
17.8%
17.8%
17.8%
17.8%
17.8%
22
Net After-Tax Profit Margin
9.0%
8.7%
6.2%
5.9%
6.6%
5.9%
5.9%
5.8%
5.8%
5.8%
5.7%
5.7%
5.7%
5.7%
5.6%
23
Total Assets Turnover
0.40
0.41
0.47
0.50
0.48
0.48
0.48
0.48
0.48
0.48
0.47
0.47
0.47
0.47
0.47
24
Return on Assets
4.7%
4.4%
3.3%
3.0%
3.2%
2.8%
2.8%
2.8%
2.8%
2.7%
2.7%
2.7%
2.7%
2.7%
2.7%
25
26
Equity Multiplier
Return on Equity
4.42
20.8%
4.24
18.6%
3.89
12.8%
3.70
10.9%
4.85
15.4%
4.89
13.7%
4.97
13.8%
5.04
14.0%
5.11
14.1%
5.18
14.2%
5.28
14.3%
5.34
14.4%
5.39
14.5%
5.43
14.5%
5.47
14.5%
2.08
2.14
1.87
1.90
2.26
2.04
2.10
2.16
2.23
2.30
2.35
2.43
2.50
2.59
2.66
27
28
EPS (using diluted shares, excluding extraordinary items
29
DPS (dividends per share)
1.51
1.59
1.63
1.66
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
1.78
1.84
1.89
1.94
2008
11,121
11.3%
3,387
396
7.9%
11,899
86,546
98,445
2009
11,521
12.3%
4,145
16,083
7.9%
5,388
88,495
93,883
2010
11,866
12.3%
4,270
9,050
7.9%
5,550
91,150
96,699
2008
2.50%
$169,351
$10,291
$179,642
$131,196
$46.03
$89,490
2009
2010
1.99
2.04
2.08
2.12
2.17
2.20
2.23
2011
12,222
12.3%
4,398
9,321
7.9%
5,716
93,884
99,600
Forecasted Valuation Metrics -- 10 Years
2012
2013
2014
2015
12,589
12,967
13,356
13,756
12.3%
12.3%
12.1%
12.1%
4,530
4,666
4,716
4,858
9,601
9,889
9,046
10,457
7.9%
7.9%
7.9%
7.9%
5,888
6,064
6,246
6,434
96,701
99,602
103,730
106,841
102,588
105,666
109,976
113,275
2016
14,169
12.1%
5,003
10,771
7.9%
6,627
110,047
116,673
2017
14,594
12.1%
5,154
11,094
7.9%
6,825
113,348
120,174
2018
15,032
12.1%
5,258
10,785
7.9%
7,030
117,390
124,420
2011
2012
2016
2017
2018
0.18789162
Valuation Metrics Trend Analysis (NOPAT, EVA, MVA, FCF and Capital in millions)
2004
2005
2006
2007
NOPAT (net operating profit after tax)
8,038
8,976
8,987
9,043
ROIC (return on invested capital)
10.3%
12.0%
10.4%
10.3%
EVA (economic value added)
1,919
3,120
2,199
2,152
FCF (free cash flow)
N/A
12,335
(2,890)
7,740
Weighted Average Cost of Capital
Net Operating Working Capital (NOWC)
3,775
1,553
4,061
2,426
Operating Long Term Assets
74,124
72,987
82,356
85,294
Total Operating Capital
77,899
74,540
86,417
87,720
Valuation (in millions where appropriate) -- through year 2018
Long-term Horizon Value Growth Rate (user-supplied)
PV of Forecasted FCF, discounted at 7.86%
Value of Non-Operating Assets
Total Intrinsic Value of the Firm
Intrinsic Market Value of the Equity
Per Share Intrinsic Value of the Firm
MVA (market value added)
Weighted Average Cost of Capital Calculations
Item
Value
Percent
ST Debt (from most recent balance sheet)
1,487
1.05%
LT Debt (from most recent balance sheet)
46,959
33.26%
92,750
65.69%
MV Equity (look up stock's mkt. cap and enter in cell BB53
Weighted Average Cost of Capital
Cost Weighted Cost
2.31%
0.02%
6.71%
1.50%
9.65%
6.34%
7.86%
2013
$166,572
$170,608
$174,689
$178,812
$182,970
$6,236
$6,423
$6,616
$6,814
$7,019
$172,809
$177,031
$181,305
$185,626
$189,988
$130,662
$132,934
$135,224
$137,528
$139,841
$46.08
$47.11
$48.17
$49.23
$50.31
$88,386
$90,076
$91,741
$93,375
$94,970
Capital Asset Pricing Model
Risk Free Rate
4.25% Bloomberg (9/17/09)
Beta
0.90 Source: MSNMoneycentral
Market Risk Prem.
6.00%
Cost of Equity
9.65%
2014
$188,297
$7,229
$195,527
$142,137
$51.40
$96,518
2015
$192,633
$7,446
$200,079
$144,552
$52.53
$98,099
$196,995
$7,670
$204,664
$147,003
$53.69
$99,625
$201,376
$7,900
$209,276
$149,519
$54.88
$101,086
$206,410
$8,137
$214,547
$152,069
$56.10
$102,470
Verizon Technical Appendix, Page 6 of 8
BQ
1
2
3
4
5
6
7
8
9
BR
BS
BT
BU
BV
BW
BX
BY
BZ
CA
CB
CC
CD
CE
CF
CG
In this section we are going to examine historical and forecasted ratios (or "multiples") typically used to value stocks ‐‐ P/CF, Enterprise Value/EBITDA, etc. We first want to compare the historical trends in these ratios to the trends in their forecasted values. If our forecasted multiples are systematically increasing or decreasing our forecasts may be too optimistic or pessimistic, and our forecast assumptions may have to be adjusted. Second, we want to compare our discounted cash flow valuation estimates with those derived from the various multiples. Once again, if there is a large discrepancy between our DCF valuation estimate of the company's stock and the range of values obtained from the various multiples, we may want to adjust our forecast assumptions. 1. You will need to look up the company's year‐end stock prices and enter them in the first 5 (historical) years of the "per share value" category.
2. Use the estimated DCF price per share in the forecasted period (link to your forecasted prices in cells BG47‐BP47.
3. Market capitalization will be calculated as basic weighted shares x historical year‐end prices and then forecasted basic weighted shares x DCF forecasted prices.
4. As with previous calculations, historical multiples use actual historical values and forecasted multiples use forecasted values. 10
11
12
13
14
Historical Ratios and Valuation
Inputs
15
Per share value (hist. & DCF est.)
16
Market capitalization
17
EBITDA
18
19
20
Enterprise Value
2004
$30.45
$84,347
$23,412
$142,784
Multiples
Price/Sales
2006
$31.88
$92,835
$23,416
2007
$38.96
$112,906
$23,880
2008
$31.92
$90,940
$24,324
2009E
$46.08
$132,198
$26,287
2010E
$47.11
$136,127
$27,075
2011E
$48.17
$140,150
$27,888
Forecasted Ratios and Valuation
2012E
2013E
2014E
2015E
$49.23
$50.31
$51.40
$52.53
$144,264 $148,468 $152,734 $157,211
$28,724
$29,586
$30,473
$31,388
2016E
$53.69
$161,814
$32,329
2017E
$54.88
$166,577
$33,299
2018E
$56.10
$171,471
$34,298
$122,769 $150,175
$172,634
$166,803
$206,106
$212,938
$219,926
$227,069
$234,363
$242,944
$250,662
$258,537
$266,568
$275,390
1.34
2005
$23.69
$65,527
$23,433
1.28
0.94
1.05
1.21
0.93
1.34
1.34
1.34
1.34
1.34
1.34
1.34
1.34
1.34
21
Price/EBITDA
3.60
2.80
3.96
4.73
3.74
5.03
5.03
5.03
5.02
5.02
5.01
5.01
5.01
5.00
5.00
22
Price/Free Cash Flow
N/A
5.32
-30.52
14.66
233.57
8.22
15.04
15.04
15.03
15.01
16.88
15.03
15.02
15.02
15.90
23
Enterprise Value/EBITDA
24
Price/Earnings
25
26
Free Cash Flow Yield
Dividend Yield
6.10
5.24
6.41
7.23
6.86
7.84
7.86
7.89
7.91
7.92
7.97
7.99
8.00
8.01
8.03
14.61
11.07
17.09
20.52
14.15
22.59
22.43
22.26
22.08
21.89
21.85
21.65
21.44
21.22
21.08
4.95%
18.5%
6.71%
-3.1%
5.10%
6.8%
4.27%
0.4%
5.56%
12.3%
3.99%
6.8%
4.02%
6.9%
4.03%
7.0%
4.04%
7.1%
4.06%
6.4%
4.05%
7.2%
4.04%
7.3%
4.03%
7.4%
4.01%
7.1%
3.98%
Override
Average w/Manual
1.08
3.77
3.50
55.76
15.00
6.37
15.49
16.00
Low Price
High Price
DCF Price
2009E
$37.59
$32.07
$84.08
$58.34
$32.25
$32.07
$84.08
$46.08
2010E
$38.91
$32.80
$46.98
$59.67
$32.82
$32.80
$59.67
$47.11
2017E
$49.56
$38.40
$54.83
$69.86
$37.14
$37.14
$69.86
$54.88
2018E
$51.31
$39.27
$52.93
$71.45
$37.77
$37.77
$71.45
$56.10
27
28
Historical
Valuation Estimates Based On:
29
Price/Sales
30
Price/EBITDA
31
Price/Free Cash Flow
32
Enterprise Value/EBITDA
33
Price/Earnings
34
35
36
Forecasted Stock Prices Based on Historical Multiples -- 10 Years
2011E
$40.28
$33.54
$48.05
$61.03
$33.41
$33.41
$61.03
$48.17
2012E
$41.70
$34.31
$49.15
$62.42
$34.02
$34.02
$62.42
$49.23
2013E
$43.16
$35.09
$50.27
$63.84
$34.65
$34.65
$63.84
$50.31
2014E
$44.68
$35.89
$45.66
$65.30
$35.02
$35.02
$65.30
$51.40
2015E
$46.25
$36.71
$52.41
$66.78
$35.69
$35.69
$66.78
$52.53
2016E
$47.88
$37.54
$53.61
$68.31
$36.40
$36.40
$68.31
$53.69
37
38
Forecasted Per Share Stock Values
Price/Sales and Enterprise Value/EBITDA vs. Price
$60
8
7
$55
$50
6
5
$45
4
3
$35
$40
2
1
$30
0
$20
$25
Price/Sales
Enterprise Value/EBITDA
Historical or DCF Price
$135 Forecasted Value Per Share
9
Historical or DCF Price
P/S and Ent. Value/EBITDA
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
$120 $105 $90 $75 $60 $45 $30 $15 $0 Low Price
DCF Price
High Price
CH
Verizon Technical Appendix, Page 7 of 8
CI
CJ
1
2
10
11
12
CN
CO
CP
CQ
CR
CS
CT
13
14
CU
CV
CW
CX
CY
CZ
DA
Earnings and Dividends Per Share
35
8.0%
30
7.0%
25
6.0%
5.0%
20
4.0%
15
3.0%
10
2.0%
5
1.0%
0
0.0%
$3.00 EPS and DPS
8
9
CM
Dividend Yield
7
Price/Earnings Ratio
6
CL
Price/Earnings Ratio and Dividend Yield
3
4
5
CK
$2.50 $2.00 $1.50 $1.00 $0.50 $0.00 15
16
17
Price/Earnings Ratio
18
Earnings Per Share
Dividend Yield
Dividends Per Share
19
20
Gross, Operating and Net Profit Margins
21
22
27
28
29
60%
Gross Margin
25
26
25%
ROA, ROE and ROIC
23
24
Return on Assets, Equity and Invested Capital
70%
50%
40%
30%
20%
30
10%
31
0%
20%
15%
10%
5%
0%
32
33
34
Gross Margin
35
Operating Margin
Net Margin
Return on Assets
Return on Equity
Return on Invested Capital
36
37
38
NOPAT and Free Cash Flow (millions)
$105,000 $5,000 $100,000 $4,000 $95,000 $3,000 $90,000 $2,000 $1,000 $85,000 $0 $80,000 NOPAT and Free Cash Flow
$6,000 Market Value Added
Economic Value Added & Market Value Added (millions)
Economic Value Added
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
$20,000 $15,000 $10,000 $5,000 $0 ($5,000)
Economic Value Added
Market Value Added
NOPAT
Free Cash Flow
DB
Verizon Technical Appendix, Page 8 of 8
DC
DD
1
2
6
7
8
9
10
11
12
13
DG
DH
DI
DJ
DK
DL
DM
DN
14
DO
DP
DQ
DR
DS
DT
DU
DV
Average Daily Trading Volume (thousands)
30,000
50,000
45,000
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
Avg. Daily Volume 5
DF
Short Interest (thousands of shares)
Short Interst (thousands)
3
4
DE
25,000
20,000
15,000
10,000
5,000
0
15
16
17
Average Daily Volume (thousands of shares)
Short Interest (thousands of shares)
18
19
20
Days to Cover Ratio (Short Interest / Volume)
24
25
26
27
28
29
30
Days to Cover Ratio
23
31
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Peer Comparison: Price/Cash Flow Ratio
90
12
MSFT and IBM
22
80
10
70
8
60
50
6
40
4
30
2
32
20
33
0
34
35
Days to Cover
10
VZ
T
CHL
36
37
38
Peer Comparison: Price/Earnings Ratio
Peer Comparison: Price/Sales Ratio
10
9
8
7
6
5
4
3
2
1
0
20
MSFT and IBM
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
15
10
5
VZ
T
VZ
T
CHL
AAPL
21