Analysts: Travis Hirt,
Brandon Holle and Mark Latimer
Applied Portfolio Management
VZ
Verizon Communications Inc.
Hold
Telecommunication Services
Sector:
Report Date:
Market Cap (mm)
Return on Capital
EPS (ttm)
Current Price
12-mo. Target Price
$185,904
15.3%
$2.42
$46.78
$52.00
Annual Dividend
Dividend Yield
Price/Earnings (ttm)
Economic Value-Added (ttm)
Free Cash Flow Margin
$2.16
4.6%
19.3
$10,175
12.2%
Business Description
Verizon Communications Inc., through its subsidiaries, provides
communications, information, and entertainment products and services
to consumers, businesses, and governmental agencies worldwide. The
company’s Wireless segment offers wireless voice and data services;
messaging services; service that enables its customers to access the
Internet on smartphones, basic phones, notebook computers, and
tablets; customers and business-focused multimedia offerings; locationbased services; global data services; LTE Internet, a high-speed Internet
service; and network access and value added services to support
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Investment Thesis
Verizon has seen continued gross revenue expansion as the company
has continued penetration into the domestic wireless and wireline
markets. We do anticipate gross margin decleration as rising input costs
remain a headwind for the carrier into the future. However, adequate
ROIC and dividend growth suggest that Verizon is committed to its
values of wealth creation and distribution. Furthermore, we do not
anticipate large future impediments to free cash flow generation, or
reason to suspect large net margin compressions in the near future. We
remain steadfast in our assertion that Verizon will continue to lead the
telecommunications industry in wireless market share and increased
penetration of new technologies. We recommend a hold of Verizon
communications at this time.
ANNUALIZED 3-YEAR CAGR
Total Revenue
EBIT
NOPAT
Earnings Per Share
Dividends Per Share
4.7%
15.0%
7.0%
41.8%
3.0%
Margins and Yields
2010
Operating Margin
Free Cash Flow Margin
Earnings Yield
Dividend Yield
14.9%
15.1%
2.5%
5.4%
Per Share Metrics
2010
Earnings
Dividends
NOPAT
Free Cash Flow
0.90
1.93
4.53
5.05
Free Cash Flow
Total Invested Capital
Total Assets
Economic Value-Added
Market Value-Added
2011
11.6%
12.0%
2.1%
4.9%
2011
0.85
1.98
4.42
1.55
Economic Value-Added
2012
11.7%
9.8%
0.7%
4.7%
2012
0.31
2.03
5.06
8.63
133.6%
-0.2%
0.3%
11.5%
30.7%
2013
15.4%
12.2%
5.2%
4.6%
2013
2014
4.01
2.09
8.97
(8.57)
2.42
2.16
3.86
14.07
Datasource: Capital IQ
2010
2011
2012
2013
2014
Compared With:
AT&T, Inc.
Sprint Corporation
and the S&P 500 Index
T
S
VZ
20%
^SPX
15%
10%
5%
0%
-5%
ROA
ROE
ROIC
80%
70%
60%
50%
40%
30%
20%
10%
0%
2009
2010
2011
EBIT
2012
2013
2014
Net Operating Profit After Tax
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
2009
Market Valued-Added
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
0.77
4.6%
6.3%
3.0%
6.6
VZ
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
2014
26.5%
19.7%
8.2%
4.3%
$20,000
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
2009
2-Yr Beta (S&P 500 Index)
Annualized Alpha
Institutional Ownership
Short Interest (% of Shares)
Days to Cover Short
2010
2011
Price/Earnings
2012
2013
2014
Price/Free Cash Flow
160
140
120
100
80
60
40
20
0
2009
2010
2011
2012
2013
2014
4/4/2015
VZ
2009
Total Revenue
Cost of Goods Sold
Verizon Communications Inc.
2010
2011
2012
Sector
2013
Telecommunication Services
2014
Average
Manual
2015E
2016E
2017E
2018E
2019E
107,808
42,903
106,565
43,731
110,875
45,875
115,846
46,275
120,550
44,887
127,079
49,931
3.3%
N/A
132,162
135,466
136,821
138,189
138,880
Gross Profit
SG&A Expense
R&D Expense
Dep. & Amort.
Other Oper. Exp.
64,905
29,863
0
16,217
88,983
62,834
30,612
0
16,303
90,646
65,000
35,624
0
16,496
97,995
69,571
39,567
0
16,460
102,302
75,663
27,089
0
16,606
88,582
77,148
41,016
0
16,533
107,480
60.2%
59.0%
79,297
80,602
80,724
81,532
81,939
Operating Income
Interest Expense
Other Non-Oper. Exp.
EBT ex-Unusuals
18,825
(3,102)
569
16,367
15,919
(2,523)
470
13,958
12,880
(2,827)
462
10,583
13,544
(2,571)
351
11,381
31,968
(2,667)
112
29,477
19,599
(4,915)
1,878
16,670
16.0%
16.0%
20,485
21,404
21,891
22,110
22,221
Total Unusual Exp.
Earnings Before Tax
(2,847)
13,520
(1,274)
12,684
(100)
10,483
(1,484)
9,897
(200)
29,277
(1,400)
15,270
Income Tax Expense
Net Income
1,919
4,894
2,467
2,549
285
2,404
(660)
875
5,730
11,497
3,314
9,625
4.5%
7.8%
9,648
10,160
10,672
10,779
10,833
Basic EPS
Total Common Shares
Dividends Per Share
1.72
2,841
1.87
0.90
2,830
1.93
0.85
2,833
1.98
0.31
2,853
2.03
4.01
2,866
2.09
2.42
3,974
2.16
6.9%
2.9%
N/A
N/A
2.50
3,855
2.22
2.66
3,822
2.29
2.82
3,790
2.35
2.84
3,790
2.41
2.86
3,790
2.46
2010
1. Revenue Growth
2. Gross Margin
3. Operating Margin
4. Net Margin
5. Common Shares Growth
6. Dividend Growth
-1.2%
59.0%
14.9%
2.4%
-0.4%
2.9%
Historical Growth and Margins
2011
2012
2013
4.0%
58.6%
11.6%
2.2%
0.1%
2.6%
4.5%
60.1%
11.7%
0.8%
0.7%
2.8%
1. Total Revenue
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
4.1%
62.8%
26.5%
9.5%
0.5%
3.0%
Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
Average
Manual
2015E
2016E
2017E
2018E
2019E
2014
3.3%
60.2%
16.0%
4.5%
6.9%
2.9%
5.4%
60.7%
15.4%
7.6%
38.7%
3.3%
$40,000
$80,000
$30,000
$10,000
$0
$0
5. Total Common Shares
4,000
3,000
2,000
1,000
0
1.0%
1.0%
0.5%
-0.9%
2.5%
0.0%
2.5%
0.0%
2.0%
$20,000
$20,000
4. Net Income
2.5%
59.5%
15.8%
7.5%
-0.9%
3.0%
3. Operating Income
$100,000
$40,000
Verizon Final. Datasource: CapitalIQ
4.0%
60.0%
15.5%
7.3%
-3.0%
3.0%
2. Gross Profit
$60,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
59.0%
16.0%
7.8%
6. Dividends Per Share
$3.00
$2.00
$1.00
$0.00
Income Statement Forecast, Page 2 of 9
Analysts: Travis Hirt, Brandon Holle and Mark Latimer
VZ
2009
ASSETS
Cash and Equivalents
Short-Term Investments
Total Cash & ST Invest.
Verizon Communications Inc.
2010
2011
2012
Sector
2013
Telecommunication Services
2014
Average
Manual
2015E
2016E
2017E
2018E
2019E
2,009
490
2,499
6,668
545
7,213
13,362
592
13,954
3,093
470
3,563
53,528
601
54,129
10,598
555
11,153
14.7%
8.0%
8,591
9,483
10,946
11,055
11,110
Total Receivables
Inventory
Prepaid Expenses
Total Current Assets
12,645
1,426
2,575
21,745
11,840
1,131
2,164
22,348
11,822
940
4,223
30,939
12,598
1,075
3,999
21,235
12,444
1,020
2,501
70,994
13,997
1,153
2,420
29,623
10.8%
0.9%
N/A
N/A
14,270
1,213
14,626
1,244
14,773
1,256
14,920
1,269
14,995
1,275
29.9%
23.0%
29,076
30,480
31,469
31,783
31,942
Gross PPE
Accumulated Depr.
Net PPE
229,743
(137,758)
91,985
211,655
(123,944)
87,711
215,626
(127,192)
88,434
209,575
(120,933)
88,642
220,865
(131,909)
88,956
230,508
(140,561)
89,947
76.6%
N/A
93,835
96,723
98,511
100,187
101,382
Long-Term Investments
Goodwill
Total Assets
3,118
22,472
226,907
3,597
21,988
220,005
3,448
23,357
230,461
3,401
24,139
225,222
3,432
24,634
274,098
2,017
24,639
232,708
203.8%
N/A
243,178
249,935
253,803
257,032
258,317
LIABILITIES AND EQUITY
Accounts Payable
Accrued Expenses
Short-Term Debt
Total Current Liabilities
13,779
4,337
9,442
1,100
29,136
14,545
3,936
10,609
0
30,597
13,611
4,194
9,417
1,934
30,761
14,621
4,454
10,167
500
26,956
14,897
4,954
9,943
447
27,050
15,223
5,598
9,625
338
28,064
12.6%
N/A
24.8%
N/A
Long-Term Debt
Pension Benefits
Total Liabilities
55,051
32,622
142,764
45,252
28,164
133,093
50,303
32,957
144,553
47,618
34,346
139,689
89,658
27,682
178,682
110,394
33,280
219,032
58.6%
N/A
56,151
Preferred Equity
Common Stock & APIC
Retained Earnings
Treasury Stock
Total Common Equity
Total Equity
Total Liab. and Equity
0
40,405
7,260
(5,000)
41,382
84,143
226,907
0
38,219
4,368
(5,267)
38,569
86,912
220,005
0
38,216
1,179
(5,002)
35,970
85,908
230,461
0
38,287
(3,734)
(4,071)
33,157
85,533
225,222
0
38,236
1,782
(3,961)
38,836
95,416
274,098
0
11,579
2,447
(3,263)
12,298
13,676
232,708
64.6%
11.0%
2010
2011
2013
2014
6.3%
11.1%
1.1%
12.1%
10.7%
0.8%
44.4%
10.3%
0.8%
8.3%
11.0%
0.9%
1. Cash and Equivalents
2. Total Receivables
3. Inventory
Percent of Sales
2012
2.7%
10.9%
0.9%
1. Cash and Equivalents
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
Verizon Final. Datasource: CapitalIQ
Note: Forecasting Payables + Accruals together in row 19 below
16,621
17,037
17,207
17,379
17,466
31,719
33,867
32,837
31,783
30,554
113,659
105,664
97,143
85,677
73,606
45,252
52,237
48,118
90,105
110,732
Note: Forecasting ST Debt + LT Debt together in row 22 above
14,538
14,901
15,050
15,201
15,277
Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
Average
Manual
2015E
2016E
2017E
2018E
2019E
14.7%
10.8%
0.9%
8.0%
6.5%
2. Total Receivables
7.0%
3. Inventory
$15,000
$1,500
$10,000
$1,000
$5,000
$500
$0
$0
Balance Sheet Forecast, Page 3 of 9
Analysts: Travis Hirt, Brandon Holle and Mark Latimer
4. Total Current Assets
5. Net PPE
6. Total Assets
7. Payables and Accruals
8. Total Current Liabilities
9. Total Debt
10. Total Equity
2010
2011
21.0%
82.3%
206.5%
13.6%
28.7%
42.5%
81.6%
27.9%
79.8%
207.9%
12.3%
27.7%
47.1%
77.5%
Percent of Sales
2012
18.3%
76.5%
194.4%
12.6%
23.3%
41.5%
73.8%
4. Total Current Assets
2013
2014
58.9%
73.8%
227.4%
12.4%
22.4%
74.7%
79.2%
23.3%
70.8%
183.1%
12.0%
22.1%
87.1%
10.8%
Forecast Defaults to Historical Avg. User Can Enter 1 Manual Avg. or Year-by-Year Values
Average
Manual
2015E
2016E
2017E
2018E
2019E
29.9%
76.6%
203.8%
12.6%
24.8%
58.6%
64.6%
$105,000
$60,000
$100,000
72.0%
185.5%
72.5%
186.0%
73.0%
186.0%
24.0%
86.0%
25.0%
78.0%
24.0%
71.0%
23.0%
62.0%
22.0%
53.0%
11.0%
$300,000
$200,000
$90,000
$100,000
$85,000
$0
22.5%
71.4%
184.5%
6. Total Assets
$95,000
$20,000
22.0%
71.0%
184.0%
5. Net PPE
$80,000
$40,000
23.0%
$0
$80,000
7. Payables and Accruals
8. Total Current Liabilities
$20,000
$40,000
$15,000
$30,000
$10,000
$20,000
$5,000
$10,000
$0
$0
9. Total Debt
$150,000
$100,000
$50,000
$0
10. Total Equity
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Verizon Final. Datasource: CapitalIQ
Balance Sheet Forecast, Page 4 of 9
Analysts: Travis Hirt, Brandon Holle and Mark Latimer
VZ
2009
Total Revenue
Gross Profit
Operating Income
Net Income
Retained Earnings
Total Common Shares
Total Diluted Shares
Earnings Per Share
Dividends Per Share
107,808
64,905
18,825
4,894
7,260
2,841
2,841
$1.72
$1.87
2009
Cash and Equivalents
Total Receivables
Inventory
Total Current Assets
Net PPE
Total Assets
Payables and Accruals
Total Current Liabilities
Total Debt
Total Equity
2,009
12,645
1,426
21,745
91,985
226,907
13,779
29,136
56,151
84,143
Verizon Communications Inc.
Sector
Historical Income Statement Highlights
2010
2011
2012
2013
106,565
62,834
15,919
2,549
4,368
2,830
2,833
$0.90
$1.93
110,875
65,000
12,880
2,404
1,179
2,833
2,839
$0.85
$1.98
115,846
69,571
13,544
875
(3,734)
2,853
2,862
$0.31
$2.03
2014
2015E
120,550
75,663
31,968
11,497
1,782
2,866
2,874
$4.01
$2.09
127,079
77,148
19,599
9,625
2,447
3,974
3,981
$2.42
$2.16
132,162
79,297
20,485
9,648
3,518
3,855
3,862
$2.50
$2.22
2013
2014
2015E
53,528
12,444
1,020
70,994
88,956
274,098
14,897
27,050
90,105
95,416
10,598
13,997
1,153
29,623
89,947
232,708
15,223
28,064
110,732
13,676
8,591
14,270
1,213
29,076
93,835
243,178
16,621
31,719
113,659
14,538
Historical Balance Sheet Highlights
2010
2011
2012
6,668
11,840
1,131
22,348
87,711
220,005
14,545
30,597
45,252
86,912
13,362
11,822
940
30,939
88,434
230,461
13,611
30,761
52,237
85,908
3,093
12,598
1,075
21,235
88,642
225,222
14,621
26,956
48,118
85,533
Telecommunication Services
Total Revenue
Report Date
Forecasted Income Statement Highlights
2016E
2017E
2018E
135,466
80,602
21,404
10,160
4,919
3,822
3,829
$2.66
$2.29
136,821
80,724
21,891
10,672
6,690
3,790
3,796
$2.82
$2.35
9,483
14,626
1,244
30,480
96,723
249,935
17,037
33,867
105,664
14,901
10,946
14,773
1,256
31,469
98,511
253,803
17,207
32,837
97,143
15,050
11,055
14,920
1,269
31,783
100,187
257,032
17,379
31,783
85,677
15,201
11,110
14,995
1,275
31,942
101,382
258,317
17,466
30,554
73,606
15,277
Earnings Per Share
$8,000
$6,000
$4,000
$2,000
$0
Cash and Equivalents
Dividends Per Share
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
$10,000
Verizon Final. Datasource: CapitalIQ
2019E
Net Income
$12,000
Total Current Assets
2019E
138,880
81,939
22,221
10,833
9,872
3,790
3,796
$2.86
$2.46
Forecasted Balance Sheet Highlights
2016E
2017E
2018E
$14,000
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
$80,000
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
138,189
81,532
22,110
10,779
8,345
3,790
3,796
$2.84
$2.41
2009
4/4/2015
Total Assets
Net PPE
Total Equity
Total Debt
$300,000
120,000
120,000
$250,000
100,000
100,000
$200,000
80,000
80,000
$150,000
60,000
60,000
$100,000
40,000
40,000
$50,000
20,000
20,000
$0
0
Financial Analysis & Valuation, Page 5 of 9
0
Copyright Robert A. Weigand, Ph.D., 2013
Margins
2009
Gross Profit Margin
Operating Profit Margin
Net Profit Margin
Free Cash Flow Margin
60.2%
17.5%
4.5%
13.5%
Gross Profit Margin
2010
59.0%
14.9%
2.4%
13.4%
2011
2012
58.6%
11.6%
2.2%
4.0%
2013
60.1%
11.7%
0.8%
21.2%
62.8%
26.5%
9.5%
0.0%
Operating Profit Margin
2014
2015E
60.7%
15.4%
7.6%
44.0%
2016E
60.0%
15.5%
7.3%
11.5%
Net Profit Margin
2017E
59.5%
15.8%
7.5%
9.6%
59.0%
16.0%
7.8%
10.2%
2018E
2019E
59.0%
16.0%
7.8%
11.2%
59.0%
16.0%
7.8%
11.6%
Free Cash Flow Margin
50%
70%
60%
40%
50%
40%
30%
30%
20%
20%
10%
10%
0%
0%
Liquidity and Debt
Days Sales Outstanding
Inventory Turnover
Total Debt to Equity
Total Debt to Assets
2009
42.81
75.60
66.7%
24.7%
Days Sales Outstanding
2010
40.55
94.22
52.1%
20.6%
2011
2012
2013
2014
38.92
117.95
60.8%
22.7%
39.69
107.76
56.3%
21.4%
37.68
118.19
94.4%
32.9%
40.20
110.22
809.7%
47.6%
Inventory Turnover
44
43
42
41
40
39
38
37
36
35
Total Debt to Equity
120
100
80
60
40
20
0
Profitability
2009
0.48
2.70
2.2%
5.8%
17.1%
Total Asset Turnover
0.6
0.5
0.4
0.3
0.2
0.1
0.0
Verizon Final. Datasource: CapitalIQ
2010
0.48
2.53
1.2%
2.9%
13.8%
39.41
108.92
781.8%
46.7%
2011
2012
0.48
2.68
1.0%
2.8%
12.4%
2013
0.51
2.63
0.4%
1.0%
15.9%
0.44
2.87
4.2%
12.0%
18.2%
Equity Multiplier
2014
2015E
0.55
17.02
4.1%
70.4%
15.3%
0.54
16.73
4.0%
66.4%
15.8%
Return on Equity
18.00
16.00
14.00
12.00
10.00
8.00
6.00
4.00
2.00
0.00
2016E
2017E
39.41
108.92
709.1%
42.3%
39.41
108.92
645.5%
38.3%
2018E
2019E
39.41
108.92
563.6%
33.3%
39.41
108.92
481.8%
28.5%
Total Debt to Assets
900%
800%
700%
600%
500%
400%
300%
200%
100%
0%
140
Total Asset Turnover
Equity Multiplier
Return on Assets
Return on Equity
Return on Capital
2015E
2016E
2017E
0.54
16.77
4.1%
68.2%
16.0%
0.54
16.86
4.2%
70.9%
15.8%
2018E
2019E
0.54
16.91
4.2%
70.9%
15.7%
Return on Assets
80%
70%
60%
50%
40%
30%
20%
10%
0%
0.54
16.91
4.2%
70.9%
15.6%
Return on Equity
Return on Capital
80%
70%
60%
50%
40%
30%
20%
10%
0%
Financial Analysis & Valuation, Page 6 of 9
Copyright Robert A. Weigand, Ph.D., 2013
Capital, NOPAT & FCF
NOWC
Net Fixed Assets
Total Invested Capital
Effective Tax Rate
NOPAT
Free Cash Flow
NOPAT Per Share
FCF/Share
Return on Capital
2009
2010
2,301
91,985
94,286
14.2%
16,153
N/A
5.69
N/A
17.1%
5,094
87,711
92,805
19.4%
12,823
14,304
4.53
5.05
13.8%
Total Invested Capital
2011
12,513
88,434
100,947
2.7%
12,530
4,388
4.42
1.55
12.4%
2012
2,145
88,642
90,787
-6.7%
14,447
24,607
5.06
8.63
15.9%
2014
52,095
88,956
141,051
19.6%
25,711
-24,553
8.97
-8.57
18.2%
10,525
89,947
100,472
21.7%
15,345
55,924
3.86
14.07
15.3%
Net Fixed Assets
2015E
2016E
2017E
2018E
Economic Value-Added
Free Cash Flow
2014
10,116
37,916
360,308
3,093
363,401
315,283
$110.51
$43.27
($67.24)
-155.4%
18,983
45,419
402,048
53,528
455,576
365,471
$127.52
$49.14
($78.38)
-159.5%
10,553
172,228
365,303
10,598
375,901
265,169
$66.73
$46.78
($19.95)
-42.6%
Cost of Capital
Equity Capitalization
2014
185,904
Weight
62.7%
% Cost
Wgt Cost
5.3%
3.3%
110,732
37.3%
5.0%
0
0.0%
0.0%
296,636
100.0%
21.7% Long-Term Growth Rate:
1.680%
0.5%
0.309 Alternative Beta:
6.00%
0.60
5.280%
Weighted Average Cost of Capital:
Verizon Final. Datasource: CapitalIQ
1.5%
0.0%
$200,000
$150,000
$100,000
$50,000
$0
$0
2013
7,714
27,752
367,389
13,362
380,751
328,514
$115.96
$40.12
($75.84)
-189.0%
$250,000
$5,000
2012
8,396
14,345
354,849
6,668
361,517
316,265
$111.75
$35.78
($75.97)
-212.3%
$300,000
$10,000
2011
11,655
9,979
352,345
2,009
354,354
298,203
$104.96
$33.13
($71.83)
-216.8%
$350,000
$15,000
2010
Economic Value-Added
Market Valued-Added
PV of Future FCFs
Value of Non-Oper. Assets
Total Intrinsic Firm Value
Intrinsic Value of Equity
Per Share Intrinsic Value
Year-End Stock Price
Over (Under) Valuation/Sh
% Over (Under) Valued
Market Valued-Added
$20,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
($10,000)
($20,000)
($30,000)
Intrinsic Value of FCFs Valuation Model
Value Creation
2009
2019E
7,452
8,316
9,767
9,865
9,914
93,835
96,723
98,511
100,187
101,382
101,287
105,039
108,278
110,052
111,296
(Tax rate from last historical year used in forecasts)
16,039
16,758
17,140
17,312
17,398
15,224
13,007
13,901
15,538
16,154
4.16
4.38
4.52
4.57
4.59
3.95
3.40
3.67
4.10
4.26
15.8%
16.0%
15.8%
15.7%
15.6%
NOPAT
$160,000
$140,000
$120,000
$100,000
$80,000
$60,000
$40,000
$20,000
$0
Total Debt
Preferred Stock
Value of All Securities
Effective Tax Rate
Risk-Free Rate
5-Yr Beta
Market Risk Premium
CAPM Cost of Equity
2013
2015E
2016E
2017E
2018E
2019E
11,208
247,899
367,506
8,591
376,096
262,437
$68.07
$49.47
11,748
260,948
372,030
9,483
381,513
275,849
$72.17
11,975
274,629
375,877
10,946
386,822
289,679
$76.44
12,062
288,446
378,269
11,055
389,324
303,647
$80.13
12,089
302,388
380,161
11,110
391,271
317,665
$83.83 0.12373666
Year-End Stock Price
Per Share Intrinsic Value
$140
Over (Under) Valuation/Sh
% Over (Under) Valued
0%
$0
($10)
($20)
($30)
($40)
($50)
($60)
($70)
($80)
($90)
$120
$100
$80
$60
$40
$20
$0
-50%
-100%
-150%
-200%
-250%
2009
4.770%
Financial Analysis & Valuation, Page 7 of 9
2010
2011
2012
2013
2014
Copyright Robert A. Weigand, Ph.D., 2013
Relative Valuation
Stock Price/Intr. Value
Price to Earnings
Price to Free Cash Flow
Price to Sales
Price to Book
Earnings Yield
Dividend Yield
Free Cash Flow Yield
2009
2010
2011
2012
2013
2014
$33.13
19.2
N/A
0.9
0.4
5.2%
5.6%
N/A
$35.78
39.7
7.1
1.0
0.5
2.5%
5.4%
14.1%
$40.12
47.3
25.9
1.0
0.5
2.1%
4.9%
3.9%
$43.27
141.1
5.0
1.1
0.5
0.7%
4.7%
19.9%
$49.14
12.2
N/A
1.2
0.5
8.2%
4.3%
-17.4%
$46.78
19.3
3.3
1.5
0.8
5.2%
4.6%
30.1%
Price to Earnings
Price to Free Cash Flow
2015E
$68.07
27.2
17.2
2.0
1.1
3.7%
3.3%
5.8%
Price to Sales
160
140
120
100
80
60
40
20
0
2016E
2017E
$72.17
27.2
21.2
2.0
1.1
3.7%
3.2%
4.7%
2018E
$76.44
27.1
20.8
2.1
1.1
3.7%
3.1%
4.8%
$80.13
28.2
19.5
2.2
1.2
3.5%
3.0%
5.1%
Earnings Yield
1.5
1.0
0.5
0.0
2015E
Metric
$2.50
$3.95
$34.28
$63.08
Estimated Target Prices vs.
Current Price
PV of Free Cash Flows
Dividend Discount Model
Price to Earnings
Price to Free Cash Flow
Price to Sales
Price to Book
Target
Price
$45.05
$68.07
$68.07
$68.07
Dividend Discount Valuation Model
VZ
Verizon Communications Inc.
Annual Dividend
2009
2010
2011
2012
$1.87
$1.93
$1.98
$2.03
3.3%
3.0%
2.9%
1.68%
0.31
6.0%
5.3%
0.60
1-Yr Div Growth
3-Yr Div Growth
5-Yr Div Growth
Risk-Free Rate
5-Yr Beta
Market Premium
Required Return
Alternative Beta
2015E
$49.47
$68.07
$69.10
$45.05
$68.07
$68.07
$68.07
Dividend Yield
9%
8%
7%
6%
5%
4%
3%
2%
1%
0%
2.0
Adjust
Ratio
18.0
$83.83
29.3
19.7
2.3
1.2
3.4%
2.9%
5.1%
Price to Book
2.5
Relative Valuation Pricing Model
2015E Ratio
Ratio
Price to Earnings
27.2
Price to Free Cash Flow
17.2
Price to Sales
2.0
Price to Book
1.1
2019E
Estimated Target Prices vs. Current Price
April 4, 2015
2013
$2.09
PV Dividends 1-4
PV Perpetual Div.
Intrinsic Value
Current Price
2014
$2.16
$8.15
$60.94
$69.10
$49.47
($49.47)
3.0%
2015E
$2.22
Expected Dividend Growth Rates
3.0%
2.5%
2.5%
2016E
2017E
2018E
$2.29
$2.35
$2.41
4.5%
Dividend Yield
If Purchased For:
Expected Return =
$2.22
$2.29
$49.47
14.8%
$2.35
$77.28
Analyst Notes:
Based on a current dividend of $2.16, expected growth as shown above and an equity required
return of 5.3%, VZ is worth $69.10 per share, vs. a current price of $49.47.
Compared With:
Compared With:
AT&T, Inc.
S&P 500 Index
2.0%
2019E
$2.46
10.91%
$74.87
Sprint Corporation
$80
$70
$60
$50
$40
$30
$20
$10
$0
Current
Price
PV of Free
Cash Flows
Dividend
Discount
Model
Verizon Final. Datasource: CapitalIQ
Price to
Earnings
Price to Free
Cash Flow
Price to
Sales
Price to
Book
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
VZ
T
S
20%
VZ
^SPX
15%
10%
5%
0%
-5%
Financial Analysis & Valuation, Page 8 of 9
Copyright Robert A. Weigand, Ph.D., 2013
Piotroski Financial Fitness Scorecard (10-point scale)
2010
1
1
0
1
1
1
1
0
1
0
7
Positive Net Income
Positive Free Cash Flow
Growing ROA (% change NI > % change TA)
Earnings Quality (Operating Income > Net Income)
Total Assets Growing Faster Than Total Liabilities
Increasing Liquidity (Current Ratio)
% Change Shares Outstanding (Diluted) < +2.0%
Expanding Gross Margin
Asset Turnover (% change sales > % change assets)
Total Liabilities to Operating Cash Flow (EBIT) < 4.0
Piotroski Score
Altman Probability of Bankruptcy Z-Score
(Current Assets-Current Liabilities)/Total Assets
Retained Earnings/Total Assets
Earnings Before Interest & Tax/Total Assets
Market Value Equity/Total Liabilities
Sales/Total Assets
Altman Score
2011
Weight
1.200
1.400
3.300
0.600
0.999
1
1
0
1
0
1
1
0
0
0
5
2012
2013
1
1
0
1
1
0
1
1
1
0
7
1
0
1
1
0
1
1
1
0
1
7
2014
1
1
0
1
0
0
1
0
1
0
5
2015E
1
1
0
1
0
0
1
0
0
0
4
2016E
1
1
1
1
1
0
1
0
0
0
6
2017E
1
1
1
1
1
1
1
0
0
0
7
2010
2011
2012
2013
2014
2015E
2016E
2017E
-0.0450
0.0462
0.2388
0.4565
0.4839
1.18
0.0009
0.0265
0.1844
0.4718
0.4806
1.16
-0.0305
0.0073
0.1984
0.5302
0.5138
1.22
0.1924
-0.0191
0.3849
0.4729
0.4394
1.47
0.0080
0.0107
0.2779
0.5093
0.5455
1.35
-0.0130
0.0141
0.2780
0.6887
0.5429
1.51
-0.0163
0.0197
0.2826
0.7042
0.5415
1.53
-0.0065
0.0271
0.2846
0.7280
0.5385
1.57
2018E
1
1
0
1
1
1
1
0
0
0
6
2018E
0.0000
0.0364
0.2839
0.7534
0.5371
1.61
2019E
1
1
0
1
1
1
1
0
1
0
7
2019E
0.0065
0.0452
0.2839
0.7842
0.5371
1.66
The interpretation for the Altman Score is: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23
Piotroski Financial Fitness Scorecard (10-pt scale)
8
7
6
5
4
3
2
1
0
Verizon Final. Datasource: CapitalIQ
Altman Probability of Bankruptcy Z-Score
2
2
1
1
1
1
1
0
0
0
Financial Analysis & Valuation, Page 9 of 9
Copyright Robert A. Weigand, Ph.D., 2013