Is Verizon Stock Fairly Valued?

Verizon (NYSE:VZ) has been performing relatively well in recent quarters, driven by its stronger postpaid phone subscriber additions. In this analysis, we take a look at the outlook for the company over the next two years and some of the trends impacting Verizon’s valuation.

View our interactive dashboard analysis Verizon Valuation: Expensive or Cheap?

Step 1: Estimate Postpaid Wireless Revenues

• Net adds could trend higher in FY’19 and FY’20, driven by the company’s mix-and-match plans and the rollout of commercial 5G services.
• ARPU could also trend slightly higher.

Step 2: Estimate Total Wireless Revenue

• We expect total wireless revenues to rise, driven by the postpaid business, although prepaid is likely to under-perform due to the mounting competition.
• Handset revenues could also trend slightly lower going forward, due to a saturated smartphone market.

Step 3: Estimate Total Wireline Revenues

• We expect wireline revenues to trend lower in the long run, due to a decline in traditional voice and data communication services, although this could be partially offset by higher demand for IP-based services.

Step 4: Estimating Total Revenue

• We estimate that Verizon’s total revenues will grow to about $133 billion, driven by higher wireless revenues.

Step 5: Estimating Net Income

• While Verizon’s net margins increased in 2018, partly due to the U.S. tax reforms, we expect adjusted net margins to stand at 14% levels going forward.

Step 6: Estimating EPS

• We expect EPS to stand at about $4.60 in 2020.

Step 7: Arriving At Price Estimate

• We are valuing Verizon at 12x projected 2020 earnings

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