Verizon Communications Inc. Sector: Telecommunication Services Hold

Transcription

1 Applied Portfolio Management Analysts: Travis Hirt, Brandon Holle and Mark Latimer VZ Verizon Communications Inc. Sector: Telecommunication Services Hold Report Date: 4/4/25 Market Cap (mm) $85,94 Annual Dividend $2.6 2-Yr Beta (S&P 5 Index).77 Return on Capital 5.3% Dividend Yield 4.6% Annualized Alpha 4.6% Compared With: EPS (ttm) $2.42 Price/Earnings (ttm) 9.3 Institutional Ownership 6.3% AT&T, Inc. Current Price $46.78 Economic Value-Added (ttm) $,75 Short Interest (% of Shares) 3. Sprint Corporation 2-mo. Target Price $52. Free Cash Flow Margin 2.2% Days to Cover Short 6.6 and the S&P 5 Index 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 t l t t li ti It l ff hi t hi i 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 4.7% Free Cash Flow 33.6% EBIT 5. Total Invested Capital -.2% NOPAT 7. Total Assets.3% Earnings Per Share 4.8% Economic Value-Added.5% Dividends Per Share 3. Market Value-Added 3.7% % 5% -5% VZ T S VZ ^SPX ROA ROE ROIC Margins and Yields Operating Margin Free Cash Flow Margin Earnings Yield Dividend Yield Per Share Metrics Earnings Dividends NOPAT Free Cash Flow %.6%.7% 26.5% 5.4% 5.% % 9.7% 2.2% 2.5% 2.%.7% 8.2% 5.2% 5.4% 4.9% 4.7% 4.3% 4.6% (8.57) 4.7 $35, $3, $25, $5, $5, EBIT Net Operating Profit After Tax $8, $6, $4, $2, $8, $6, $4, $2, Economic Value-Added Market Valued-Added $2, $8, $6, $4, $2, $8, $6, Price/Earnings Price/Free Cash Flow Datasource: Capital IQ

2 VZ Verizon Communications Inc. Sector Telecommunication Services Average Manual 25E 26E 27E 28E 29E Total Revenue 7,88 6,565,875 5,846 2,55 27,79 3.3% N/A 32,62 35,466 36,82 38,89 38,88 Cost of Goods Sold 42,93 43,73 45,875 46,275 44,887 49,93 Gross Profit 64,95 62,834 65, 69,57 75,663 77,48 6.2% ,297 8,62 8,724 8,532 8,939 SG&A Expense 29,863 3,62 35,624 39,567 27,89 4,6 R&D Expense Dep. & Amort. 6,27 6,33 6,496 6,46 6,66 6,533 Other Oper. Exp. 88,983 9,646 97,995 2,32 88,582 7,48 Operating Income 8,825 5,99 2,88 3,544 3,968 9, ,485 2,44 2,89 22, 22,22 Interest Expense (3,2) (2,523) (2,827) (2,57) (2,667) (4,95) Other Non-Oper. Exp ,878 EBT ex-unusuals 6,367 3,958,583,38 29,477 6,67 Total Unusual Exp. (2,847) (,274) () (,484) (2) (,4) Earnings Before Tax 3,52 2,684,483 9,897 29,277 5,27 Income Tax Expense,99 2, (66) 5,73 3,34 Net Income 4,894 2,549 2,44 875,497 9, % 7.8% 9,648,6,672,779,833 Basic EPS Total Common Shares 2,84 2,83 2,833 2,853 2,866 3, % N/A 3,855 3,822 3,79 3,79 3,79 Dividends Per Share % N/A Historical Growth and Margins Forecast Defaults to Historical Avg. User Can Enter Manual Avg. or Year-by-Year Values Average Manual 25E 26E 27E 28E 29E. Revenue Growth -.2% % 4.% 5.4% 3.3% %...5% 2. Gross Margin % 6.% 62.8% 6.7% 6.2% % 3. Operating Margin 4.9%.6%.7% 26.5% 5.4% % 5.8% 4. Net Margin 2.4% 2.2%.8% 9.5% 7.6% 4.5% 7.8% 7.3% 7.5% 5. Common Shares Growth -.4%.%.7%.5% 38.7% 6.9% % -.9%.. 6. Dividend Growth 2.9% 2.6% 2.8% % 2.9% % 2.5% 2.. Total Revenue 2. Gross Profit 3. Operating Income $4, $2, $8, $6, $8, $6, $3, 4. Net Income 5. Total Common Shares 6. Dividends Per Share $2, $8, $6, $4, $2, 4, 3, 2,, $3. $2. $.. Verizon Final. Datasource: CapitalIQ Income Statement Forecast, Page 2 of 9 Analysts: Travis Hirt, Brandon Holle and Mark Latimer

3 VZ Verizon Communications Inc. Sector Telecommunication Services ASSETS Average Manual 25E 26E 27E 28E 29E Cash and Equivalents 2,9 6,668 3,362 3,93 53,528, % 8. 8,59 9,483,946,55, Short-Term Investments Total Cash & ST Invest. 2,499 7,23 3,954 3,563 54,29,53 Total Receivables 2,645,84,822 2,598 2,444 3,997.8% N/A 4,27 4,626 4,773 4,92 4,995 Inventory,426,3 94,75,2,53.9% N/A,23,244,256,269,275 Prepaid Expenses 2,575 2,64 4,223 3,999 2,5 2,42 Total Current Assets 2,745 22,348 3,939 2,235 7,994 29, % ,76 3,48 3,469 3,783 3,942 Gross PPE 229,743 2,655 25,626 29,575 22,865 23,58 Accumulated Depr. (37,758) (23,944) (27,92) (2,933) (3,99) (4,56) Net PPE 9,985 87,7 88,434 88,642 88,956 89, % N/A 93,835 96,723 98,5,87,382 Long-Term Investments 3,8 3,597 3,448 3,4 3,432 2,7 Goodwill 22,472 2,988 23,357 24,39 24,634 24,639 Total Assets 226,97 22,5 23,46 225, ,98 232, % N/A 243,78 249, ,83 257,32 258,37 LIABILITIES AND EQUITY 3,779 4,545 3,6 4,62 4,897 5,223 Accounts Payable 4,337 3,936 4,94 4,454 4,954 5,598 Note: Forecasting Payables + Accruals together in row 9 below Accrued Expenses 9,442,69 9,47,67 9,943 9, % N/A 6,62 7,37 7,27 7,379 7,466 Short-Term Debt,, Total Current Liabilities 29,36 3,597 3,76 26,956 27,5 28, % N/A 3,79 33,867 32,837 3,783 3,554 Long-Term Debt 55,5 45,252 5,33 47,68 89,658, % N/A 3,659 5,664 97,43 85,677 73,66 Pension Benefits 32,622 28,64 32,957 34,346 27,682 33,28 56,5 45,252 52,237 48,8 9,5,732 Total Liabilities 42,764 33,93 44,553 39,689 78,682 29,32 Note: Forecasting ST Debt + LT Debt together in row 22 above Preferred Equity Common Stock & APIC 4,45 38,29 38,26 38,287 38,236,579 Retained Earnings 7,26 4,368,79 (3,734),782 2,447 Treasury Stock (5,) (5,267) (5,2) (4,7) (3,96) (3,263) Total Common Equity 4,382 38,569 35,97 33,57 38,836 2,298 Total Equity 84,43 86,92 85,98 85,533 95,46 3, %. 4,538 4,9 5,5 5,2 5,277 Total Liab. and Equity 226,97 22,5 23,46 225, ,98 232,78 Percent of Sales Forecast Defaults to Historical Avg. User Can Enter Manual Avg. or Year-by-Year Values Average Manual 25E 26E 27E 28E 29E. Cash and Equivalents 6.3% 2.% 2.7% 44.4% 8.3% 4.7% % Total Receivables.%.7%.9%.3%..8% 3. Inventory.%.8%.9%.8%.9%.9%. Cash and Equivalents 2. Total Receivables 3. Inventory $6, $5, $3, $5, $5, $,5 $, $5 Verizon Final. Datasource: CapitalIQ Balance Sheet Forecast, Page 3 of 9 Analysts: Travis Hirt, Brandon Holle and Mark Latimer

4 Percent of Sales Forecast Defaults to Historical Avg. User Can Enter Manual Avg. or Year-by-Year Values Average Manual 25E 26E 27E 28E 29E 4. Total Current Assets % 8.3% 58.9% 23.3% 29.9% % 5. Net PPE 82.3% 79.8% 76.5% 73.8% 7.8% 76.6% % % Total Assets 26.5% 27.9% 94.4% 227.4% 83.% 23.8% % 85.5% Payables and Accruals 3.6% 2.3% 2.6% 2.4% % 8. Total Current Liabilities 28.7% 27.7% 23.3% 22.4% 22.% 24.8% Total Debt 42.5% 47.% 4.5% 74.7% 87.% 58.6% Total Equity 8.6% 77.5% 73.8% 79.2%.8% 64.6%. 4. Total Current Assets 5. Net PPE 6. Total Assets $8, $6, $5, $95, $9, $85, $8, $3, $2, 7. Payables and Accruals 8. Total Current Liabilities 9. Total Debt $5, $5, $3, $5, $5,. Total Equity $8, $6, Verizon Final. Datasource: CapitalIQ Balance Sheet Forecast, Page 4 of 9 Analysts: Travis Hirt, Brandon Holle and Mark Latimer

5 VZ Verizon Communications Inc. Sector Telecommunication Services Report Date 4/4/25 29 Historical Income Statement Highlights Forecasted Income Statement Highlights E 26E 27E 28E 29E Total Revenue 7,88 6,565,875 5,846 2,55 27,79 32,62 35,466 36,82 38,89 38,88 Gross Profit 64,95 62,834 65, 69,57 75,663 77,48 79,297 8,62 8,724 8,532 8,939 Operating Income 8,825 5,99 2,88 3,544 3,968 9,599 2,485 2,44 2,89 22, 22,22 Net Income 4,894 2,549 2,44 875,497 9,625 9,648,6,672,779,833 Retained Earnings 7,26 4,368,79 (3,734),782 2,447 3,58 4,99 6,69 8,345 9,872 Total Common Shares 2,84 2,83 2,833 2,853 2,866 3,974 3,855 3,822 3,79 3,79 3,79 Total Diluted Shares 2,84 2,833 2,839 2,862 2,874 3,98 3,862 3,829 3,796 3,796 3,796 Earnings Per Share $ $4. $2.42 $2.5 $2.66 $2.82 $2.84 $2.86 Dividends Per Share $.87 $.93 $.98 $2.3 $2.9 $2.6 $2.22 $2.29 $2.35 $2.4 $2.46 Historical Balance Sheet Highlights Forecasted Balance Sheet Highlights E 26E 27E 28E 29E Cash and Equivalents 2,9 6,668 3,362 3,93 53,528,598 8,59 9,483,946,55, Total Receivables 2,645,84,822 2,598 2,444 3,997 4,27 4,626 4,773 4,92 4,995 Inventory,426,3 94,75,2,53,23,244,256,269,275 Total Current Assets 2,745 22,348 3,939 2,235 7,994 29,623 29,76 3,48 3,469 3,783 3,942 Net PPE 9,985 87,7 88,434 88,642 88,956 89,947 93,835 96,723 98,5,87,382 Total Assets 226,97 22,5 23,46 225, ,98 232,78 243,78 249, ,83 257,32 258,37 Payables and Accruals 3,779 4,545 3,6 4,62 4,897 5,223 6,62 7,37 7,27 7,379 7,466 Total Current Liabilities 29,36 3,597 3,76 26,956 27,5 28,64 3,79 33,867 32,837 3,783 3,554 Total Debt 56,5 45,252 52,237 48,8 9,5,732 3,659 5,664 97,43 85,677 73,66 Total Equity 84,43 86,92 85,98 85,533 95,46 3,676 4,538 4,9 5,5 5,2 5,277 $6, $4, $2, $8, $6, Total Revenue $4, $2, $8, $6, $4, $2, Net Income $4.5 $4. $3.5 $3. $2.5 $2. $.5 $..5. Earnings Per Share Dividends Per Share $8, $7, $6, $5, $3, Total Current Assets Cash and Equivalents $3, $25, $2, $5, $5, Total Assets Net PPE 2,, 8, 6, 4, 2, Total Equity Total Debt 2,, 8, 6, 4, 2, Verizon Final. Datasource: CapitalIQ Financial Analysis & Valuation, Page 5 of 9 Copyright Robert A. Weigand, Ph.D., 23

6 Margins E 26E 27E 28E 29E Gross Profit Margin 6.2% % 6.% 62.8% 6.7% % Operating Profit Margin 7.5% 4.9%.6%.7% 26.5% 5.4% 5.5% 5.8% Net Profit Margin 4.5% 2.4% 2.2%.8% 9.5% 7.6% 7.3% 7.5% 7.8% 7.8% 7.8% Free Cash Flow Margin 3.5% 3.4% % % 9.6%.2%.2%.6% Gross Profit Margin Operating Profit Margin Net Profit Margin Free Cash Flow Margin Liquidity and Debt E 26E 27E 28E 29E Days Sales Outstanding Inventory Turnover Total Debt to Equity 66.7% 52.% 6.8% 56.3% 94.4% 89.7% 78.8% 79.% 645.5% 563.6% 48.8% Total Debt to Assets 24.7% 2.6% 22.7% 2.4% 32.9% 47.6% 46.7% 42.3% 38.3% 33.3% 28.5% Days Sales Outstanding Inventory Turnover Total Debt to Equity Total Debt to Assets Profitability E 26E 27E 28E 29E Total Asset Turnover Equity Multiplier Return on Assets 2.2%.2%..4% 4.2% 4.% 4. 4.% 4.2% 4.2% 4.2% Return on Equity 5.8% 2.9% 2.8% % 66.4% 68.2% 7.9% 7.9% 7.9% Return on Capital 7.% 3.8% 2.4% 5.9% 8.2% 5.3% 5.8% % 5.7% 5.6% Total Asset Turnover Equity Multiplier Return on Equity Return on Assets Return on Equity Return on Capital Verizon Final. Datasource: CapitalIQ Financial Analysis & Valuation, Page 6 of 9 Copyright Robert A. Weigand, Ph.D., 23

7 Capital, NOPAT & FCF E 26E 27E 28E 29E NOWC 2,3 5,94 2,53 2,45 52,95,525 7,452 8,36 9,767 9,865 9,94 Net Fixed Assets 9,985 87,7 88,434 88,642 88,956 89,947 93,835 96,723 98,5,87,382 Total Invested Capital 94,286 92,85,947 9,787 4,5,472,287 5,39 8,278,52,296 Effective Tax Rate 4.2% 9.4% 2.7% -6.7% 9.6% 2.7% (Tax rate from last historical year used in forecasts) NOPAT 6,53 2,823 2,53 4,447 25,7 5,345 6,39 6,758 7,4 7,32 7,398 Free Cash Flow N/A 4,34 4,388 24,67-24,553 55,924 5,224 3,7 3,9 5,538 6,54 NOPAT Per Share FCF/Share N/A Return on Capital 7.% 3.8% 2.4% 5.9% 8.2% 5.3% 5.8% % 5.7% 5.6% $6, $4, $2, $8, $6, Total Invested Capital Net Fixed Assets $6, $5, $3, () () ($3,) NOPAT Free Cash Flow $5, $5, Economic Value-Added Market Valued-Added $35, $3, $25, $2, $5, $5, Intrinsic Value of FCFs Valuation Model Value Creation E 26E 27E 28E 29E Economic Value-Added,655 8,396 7,74,6 8,983,553,28,748,975 2,62 2,89 Market Valued-Added 9,979 4,345 27,752 37,96 45,49 72, ,899 26, , ,446 32,388 PV of Future FCFs 352, , ,389 36,38 42,48 365,33 367,56 372,3 375, ,269 38,6 Value of Non-Oper. Assets 2,9 6,668 3,362 3,93 53,528,598 8,59 9,483,946,55, Total Intrinsic Firm Value 354,354 36,57 38,75 363,4 455, ,9 376,96 38,53 386, ,324 39,27 Intrinsic Value of Equity 298,23 36, ,54 35, ,47 265,69 262, , ,679 33,647 37,665 Per Share Intrinsic Value $4.96 $.75 $5.96 $.5 $27.52 $66.73 $68.7 $72.7 $76.44 $8.3 $ Year-End Stock Price $33.3 $35.78 $4.2 $43.27 $49.4 $46.78 $49.47 Over (Under) Valuation/Sh ($7.83) ($75.97) ($75.84) ($67.24) ($78.38) ($9.95) % Over (Under) Valued -26.8% -22.3% % -59.5% -42.6% Cost of Capital 24 Weight % Cost Wgt Cost Equity Capitalization 85, % 5.3% 3.3% Total Debt, % 5..5% Preferred Stock... Value of All Securities 296,636. Effective Tax Rate 2.7% Long-Term Growth Rate: Risk-Free Rate.68.5% 5-Yr Beta.39 Alternative Beta: Market Risk Premium 6..6 CAPM Cost of Equity 5.28 Weighted Average Cost of Capital: 4.77 $4 $2 $ $8 $6 $4 $2 Year-End Stock Price Per Share Intrinsic Value ($) ($2) ($3) ($4) ($5) ($6) ($7) ($8) ($9) Over (Under) Valuation/Sh % Over (Under) Valued Verizon Final. Datasource: CapitalIQ Financial Analysis & Valuation, Page 7 of 9 Copyright Robert A. Weigand, Ph.D., 23

8 Relative Valuation E 26E 27E 28E 29E Stock Price/Intr. Value $33.3 $35.78 $4.2 $43.27 $49.4 $46.78 $68.7 $72.7 $76.44 $8.3 $83.83 Price to Earnings Price to Free Cash Flow N/A N/A Price to Sales Price to Book Earnings Yield 5.2% 2.5% 2.%.7% 8.2% 5.2% 3.7% 3.7% 3.7% 3.5% 3.4% Dividend Yield 5.6% 5.4% 4.9% 4.7% 4.3% 4.6% 3.3% 3.2% 3.% % Free Cash Flow Yield N/A 4.% 3.9% 9.9% -7.4% 3.% 5.8% 4.7% 4.8% 5.% 5.% Price to Earnings Price to Free Cash Flow Price to Sales Price to Book 9% 8% 7% 6% 5% 4% 3% 2% % Earnings Yield Dividend Yield Relative Valuation Pricing Model Adjust 25E Target Dividend Discount Valuation Model 25E Ratio Ratio Ratio Metric Price VZ Verizon Communications Inc. April 4, 25 Expected Dividend Growth Rates Price to Earnings $2.5 $45.5 Annual Dividend % 2.5% 2. Price to Free Cash Flow 7.2 $3.95 $ E 26E 27E 28E 29E Price to Sales 2. $34.28 $68.7 $.87 $.93 $.98 $2.3 $2.9 $2.6 $2.22 $2.29 $2.35 $2.4 $2.46 Price to Book. $63.8 $68.7 -Yr Div Growth 3.3% PV Dividends -4 $8.5 Dividend Yield 4.5% Estimated Target Prices vs. 25E 3-Yr Div Growth 3. PV Perpetual Div. $6.94 Current Price $ Yr Div Growth 2.9% Intrinsic Value $69. If Purchased For: $49.47 PV of Free Cash Flows $68.7 Risk-Free Rate.68% Current Price $49.47 Expected Return = 4.8%.9% Dividend Discount Model $69. 5-Yr Beta.3 ($49.47) $2.22 $2.29 $2.35 $77.28 $74.87 Price to Earnings $45.5 Market Premium 6. Analyst Notes: Price to Free Cash Flow $68.7 Required Return 5.3% Based on a current dividend of $2.6, expected growth as shown above and an equity required Price to Sales $68.7 Alternative Beta.6 return of 5.3%, VZ is worth $69. per share, vs. a current price of $ Price to Book $68.7 Estimated Target Prices vs. Current Price Compared With: AT&T, Inc. Compared With: S&P 5 Index $8 Sprint Corporation $7 $6 $5 $4 $3 $2 $ Current Price PV of Free Cash Flows Dividend Discount Model Price to Earnings Price to Free Cash Flow Price to Sales Price to Book VZ T S 2 5% 5% -5% VZ ^SPX Verizon Final. Datasource: CapitalIQ Financial Analysis & Valuation, Page 8 of 9 Copyright Robert A. Weigand, Ph.D., 23

9 Piotroski Financial Fitness Scorecard (-point scale) E 26E 27E 28E 29E 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. Expanding Gross Margin Asset Turnover (% change sales > % change assets) Total Liabilities to Operating Cash Flow (EBIT) < 4. Piotroski Score Altman Probability of Bankruptcy Z-Score Weight E 26E 27E 28E 29E (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 The interpretation for the Altman Score is: Safe Zone = Z > 2.9, Grey Zone =.23 < Z < 2.9, Distress Zone = Z < Piotroski Financial Fitness Scorecard (-pt scale) 2 2 Altman Probability of Bankruptcy Z-Score Verizon Final. Datasource: CapitalIQ Financial Analysis & Valuation, Page 9 of 9 Copyright Robert A. Weigand, Ph.D., 23