Today we are looking at Verizon Communications Inc. (NYSE: VZ), to determine if you should buy VZ stock. We will look at VZ financial ratios, analyst ratings, and current valuation to determine a VZ forecast and price.
What Does VZ Do?
Verizon Communications Inc., through its subsidiaries, offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. Its Consumer segment provides postpaid and prepaid service plans; internet access on notebook computers and tablets; wireless equipment, including smartphones and other handsets; and wireless-enabled internet devices, such as tablets, and other wireless-enabled connected devices.
VZ Stock Analysis and Forecast
Verizon Communications Inc. Competition and Comparables
In order to undergo a comparable analysis (to determine VZ stocks value), we need to first outline who VZ’s competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to VZ, and have a market cap similar to VZ (if possible).
By keeping this in mind, I found the following list of companies to be some of VZ stocks closest competitors:
T, SE, SNAP, AMX, AMOV, RELX, RBLX, BCE, DASH, SPOT
VZ Stock News and Information
Analysis of Verizon Communications Inc. Stock Performance and Financial Ratios
Yearly:
- VZ Revenues: In FY 2021, VZ experienced a yearly increase in revenues of $5.32B (or 4.15%) resulting in a total revenue figure of $133.61B.
- VZCost of Revenues: In FY 2021, VZ experienced a yearly increase in their cost of revenues of $5.1B (9.96%), resulting in a total revenue figure of $56.3B. Since the increase (of 9.96%), in VZ’s cost of revenue was greater (by 5.81%) than the increase (of 4.15%) in VZ’s revenues, we should expect that VZ experienced an decrease (roughly -5.81%) in their FY gross profits.
- VZGross Profit: In FY 2021, VZ experienced a yearly increase in their gross profit of $221M (or 0.29%) resulting in a total gross profit of $77.31B. This increase is inconsistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY.
- VZ EBITDA: In FY 2021, VZ experienced a yearly increase in their EBITDA of $4.17B (or 9.4%) resulting in a total EBITDA of $48.56B. This increase (of 9.4%) stems from the fact that VZ experienced a increase in their gross profits of 0.29% (as we saw in the previous bullet point).
- VZ Net Income: In FY 2021, VZ experienced a yearly increase in their net income of $4.26B (or 23.95%) resulting in a total net income of $22.07B.
- VZ EPS: As a result of VZ’s increase in net income of $4.26B, VZ’s EPS also increased (by $1.03) from $4.3 in FY 2020 to $5.33 in FY 2021
Overall, Verizon performed very well financially in 2021. However, has Verizon been able to continue this positive tredn into 2022? Let’s find out!
Quarterly:
- VZ Revenues: In Q1 2022, VZ experienced a quarterly decrease in revenues of $-513M (or -1.51%) resulting in a total revenue figure of $33.55B.
- VZ Cost of Revenues: In Q1 2022, VZ experienced a quarterly decrease in their cost of revenues of $-646M (-4.31%), resulting in a total revenue figure of $14.35B. Since the decrease (of -4.31%), in VZ’s cost of revenue was lesser (by -2.8%) than the decrease (of -1.51%) in VZ’s revenues, we should expect that VZ experienced an increase (roughly 2.8%) in their Q1 gross profits.
- VZ Gross Profit: In Q1 2022, VZ experienced a quarterly increase in their gross profit of $133M (or 0.7%) resulting in a total gross profit of $19.2B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4.
- VZ EBITDA: In Q1 2022, VZ experienced a quarterly increase in their EBITDA of $164M (or 1.52%) resulting in a total EBITDA of $10.97B. This increase (of 1.52%) stems from the fact that VZ experienced a increase in their gross profits of 0.7% (as we saw in the previous bullet point).
- VZ Net Income: In Q1 2022, VZ experienced a quarterly decrease in their net income of $-33M (or -0.72%) resulting in a total net income of $4.58B.
- VZ EPS: As a result of VZ’s decrease in net income of $-33M, VZ’s EPS also decreased (by $-0.02) from $1.11 in Q4 2021 to $1.09 in Q1 2022
Overall, it seems as though VZ had a somewhat poor financial performance (due to EPS $-0.02) as many of their financial metrics shrunk, most notably their EPS (by $-0.02), as well as their net income (by $-33M), and other metrics (as you can tell from the above bullet points).
However, VZ stock met their EPS estimate by $0(or 0%), as they reported an EPS of $1.35 or the quarter (compared to their estimated EPS of $1.35). This indicates that VZ is living up to their expectations, which is better than not.
Is VZ Share Dilution an Issue?
As part of their Q1 2022 earnings release, VZ stated that they currently have 4.2B Shares Outstanding (weighted average), which is up 34M shares (from 4.17B shares outstanding in Q4 2021). This is essentially negligible as it would cause share dilution of less than 1%.
Furthermore, VZ stock has up to 2M of shares that they can issue (thereby diluting VZ’s stock). This maximum dilution for the period would only have a dilutionary effect on VZ of 0.02%, which is again negligible.
Latest VZ Stock Analyst Ratings
Here is the current analyst rating distribution for VZ. In total there are 22 VZ stock analyst ratings.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if VZ stock is a buy or sell. This is a little bit of a mixed board, however, it is more bullish than anything.
VZ Stock Rating and Forecast
Currently, we have 3 financial ratings that help investors get a general idea of a company’s valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.
Firstly, VZ stock has a DCF rating of 5 — Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating.
Secondly, VZ stock has an ROE rating of 3 — Neutral. VZ’s current ROE is 27.06%, which does not justify their rank of 3 — Neutral. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 13.19%. In my opinion, the VZ stock should have an ROE score of 5 -Very Strong.
Lastly, VZ stock has a P/E rating of 5 — Very Strong. VZ stock price to earnings ratio is currently 10 which justifies their rank of 5 — Very Strong. Price to Earnings is the most commonly found financial metric and is best used when comparing a company’s p/e to the industry average. VZ operates in the Telecom Services industry, which currently has an average P/E of -9.06.
Overall, based on the 3 previously mentioned fields, VZ stock has been given a comprehensive rating of 5 — Very Strong. This rating implies that they are Very Healthy financially.
VZ Stock Price Prediction and Valuation
The Latest VZ Ratings
As we know, VZ stock has been given an overall rating of 5 — Very Strong. This implies that VZ is sound fundamentally and is a good candidate for being “undervalued”. With this in mind, let’s proceed.
VZ Price Forecast Using Comparable Analysis
- Price to Book (P/B): VZ’s current P/B ratio is 2.58, compared to the average P/B ratio of VZ’s peers being 4.52. This implies that VZ is undervalued and their share price should change by a factor of 75.19% to be at fair value (based on VZ’s P/B compared to the P/B of their peers).
- Price to Equity (P/E): VZ stock P/E ratio is currently 10, compared to the average P/E ratio of VZ’s peers being 15.16. This implies that VZ is undervalued and their share price should increase by 51.6% to be at fair value.
Overall, VZ stock is undervalued and needs to experience a change in stock price of (an average of) 64% to be considered “at fair value”.
Is VZ Stock a Buy or Sell?
Overall, due to the overall stock rating of (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that 5 — Very Strong VZ was overvalued and need to experience a price change of 64% in order to be at their fair value, I have concluded the following:
I think that VZ is a great stock to consider adding to your portfolio as it is currently undervalued and overlooked.
Originally published at https://utradea.com.
