A complete analysis on Verizon communications.

1. VERIZON02/05/2018

2. CURRENT
POSITION
TICKER: VZ
SECTOR: Telecommunication
INDUSTRY: Service
CURRENT PRICE: $50.50(As of 02/05/2018)
AVERAGE SHARES TRADED PER YEAR:
16,963,822
WEIGHT IN PORTFOLIO: 1.35%
CURRENT TARGET PRICE: $ 44.18
MARKET CAPITALIZATION: $215901million
RECOMMENDATION: Hold

3. COMPANY BACKGROUND:
• Verizon stands as the number 1 telecom carrier in The United States of
America.
• Segments of company includes Ad market, media, technological solutions.
• Subsidiary of Verizon started as an umbrella for its digital contents AOL
and Yahoo.
• Core business segments of the company- Wireline and wireless.
Source: Bloomberg

4. PRICE CHART

5. MERGERS AND ACQUISITIONS:
Verizon merged with an European telematics with Movildata purchase.
Verizon acquires Niddel to add security detection for business customers.
Verizon purchased fiber network infrastructure from WideOpenWest in
Chicago market- for the development of wireless sites with the help of fiber
and small cells.
Verizon concentrating in 5G deployment. As a result acquired Straight Path
Spectrum to accelerate 5G.
Source: http://www.verizon.com/about/news-tag/mergers-acquisitions

6. FINANCIAL NEWS:
• Currently struggling with decline in revenue in the
wireless segment due to market saturation.
• Pooled all assets under a new subsidiary called Oath.
• According to 4Q, revenue is slightly ahead of
estimates while EPS fell short.
• Revenue in the core business segments fell in the
past quarters.
• Oath is expected to offset the slowdown of revenue.
Source: Bloomberg

7. •Oath revenue ($2.2. billion) in fourth quarter is 10% more
than the third quarter in 2017.​
•Postpaid additions have increased in the 4th quarter( $
431000) from $274000 in the 3rd quarter because of the
unlimited plans.​
•Verizon Fios total revenue grew 2.3% from the last quarter
due to internet customer growth.​
•Telematics revenue is $ 230 million in the 4th quarter of
2017.​
•IOT revenue increased 17% over year.​
FINANCIAL NEWS

8. FINANCIAL ANALYSIS:
Price ratios:
P/E ratio- 14.3
P/S ratio – 1.7
P/B ratio – 5.1
P/CF ratio – 27.1
Dividends:
Dividend yield – 4.4%
Dividend payout ratio – 31.6
Revenue:
Operating revenue(full year)- $126 billion(2017)
2% less than 2016
Operating revenue(4Q) - $34 billion(2017)
5% more than 4Q 2016
SOURCE: BLOOMBERG

9. EBITDA(4Q 2016) – 37.1%​
EBITDA(4Q 2017) - 27.2%​
EBITDA(2016) – 35.5%​
EBITDA(2017) – 35.7%​
Earnings:
EPS(2016) - $3.21
EPS (2017)- $7.36
EPS(4Q 2016) - $1.10
EPS(4Q 2017) - $4.56
FINANCIAL ANALYSIS:
Source: Bloomberg

10. PERFORMANCE ANALYSIS

11. (in millions) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue 43,882.0 49,332.0 60,325.0 63,407.0 70,154.0 75,868.0 81,023.0 87,646.0 91,680.0 89,186.0 87,511.0
Operating Income 11,795.0 13,994.0 16,638.0 18,724.0 18,527.0 21,768.0 25,997.0 26,760.0 29,973.0 29,853.0 29,207.0
(in millions) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Revenue 50,316.048,214.042,451.041,227.040,682.0 39,780.0 39,223.0 38,429.0 32,094.0 31,345.0 30,680.0
Operating Income 4,676.0 3,862.0 1,573.0 768.0 959.0 60.0 373.0 1,035.0 -521.0 40.0 380.0
VERIZON WIRELINE:
VERIZON WIRELESS:
BYSEGMENT
Source:Bloomberg

12. BY
GEOGRAPHY
96%
4%
REVENUE
DOMESTIC
INTERNATIONA
L
International countries:
 Argentina
 Cuba
 Peru
 Jamaica
 Brazil
 Bolivia and more
Source:Bloomberg

13. CAPITAL
EXPENDITURE
CAPITAL EXPENDITURE
(in millions)
YEAR WIRELESS WIRELINE
2007 6503 10956
2008 6510 9797
2009 7152 8892
2010 8438 7269
2011 8973 6399
2012 8857 6342
2013 9425 6229
2014 10515 5750
2015 11725 5049
2016 11240 4504
2017 10310 5339
PERCENTAGE 56% 44%
Source: Bloomberg

14. SWOT ANALYSIS

15. • Heavy debts.
•Negative cash flow.
•International players are a
threat.
THREATS
• Largest telecom provider.
• New healthy investments.
STRENGTH
• Regional player.
• Premium prices.
• High cost of infrastructure.
WEAKNESS
• International expansion.
• Greater internet usage.
OPPORTUNITIES

16. DDM MODEL

17. SINGLE STAGE DDM MODEL
CURRENT DIVIDEND $2.34
RATE OF RETURN 8.46%
LONG TERM GROWTH RATE 3%
INTRINSIC VALUE $41.50
REQUIRED RATE OF RETURN
RISK FREE RATE 2.84%
MARKET RETURN 10.13%
COUNTRY RISK PREMIUM 7.29%
BETA 0.77
EQUITY RISK PREMIUM 5.62%
RATE OF RETURN(CAPM) 8.46%

18. RELATIVE VALUATION

19. RELATIVE VALUATION
P/E P/S P/B P/CF EV/EBITDA
AT&T 12.68 1.42 1.82 5.82 6.62
SPRINT 18.69 1.04 1.83 8.29 6.77
CENTURYLINK 10.32 1.05 0.78 2.16 6.89
T MOBILE 26.24 1.33 2.69 7.04 7.76
ALPHABET 27.55 9.19 5.05 23.29 16.2
VERIZON 14.15 1.72 5.01 8.54 7.49
MEDIAN 16.42 1.38 2.26 7.67 7.19
EPS 4.55
SALES PER SHARE 30.86
BOOK VALUE PER SHARE 10.57
FREE CASHFLOW PER
SHARE
1.97
EBITDA 10.87
74.71 42.43 23.89 15.10 78.16
WEIGHTS 0.2 0.2 0.2 0.2 0.2
INTRINSIC VALUE $ 46.86

20. TARGET PRICE
MODELS INTRINSIC
VALUE
WEIGHTS INTRINSIC VALUE *
WEIGHTS
DDM MODEL $41.50 50% $20.75
RELATIVE
VALUATION
$46.86 50% $23.43
TARGET PRICE $44.18
TARGET PRICE $44.18
CURRENT PRICE $50.50
OVER/UNDER VALUED OVERVALUED

21. RECOMMENDATION
Hold all 600 shares.

22. QUESTIONS?