As of July 19, 2023, the stock price of Verizon Communications Inc (VZ, Financial) has experienced a change of 5.27%, with a current price of $33.97 per share. The company displays robust financial metrics with an EPS of $5.14, a market cap of $142.8 billion, and sales reaching $136.2 billion. According to GuruFocus, the GF Value of Verizon Communications is $53.65, suggesting a possible value trap scenario for investors.
Verizon Communications is a leading wireless business, generating nearly 80% of its revenue from this sector. It serves approximately 93 million postpaid and 23 million prepaid phone customers, making it the largest U.S. wireless carrier. Its fixed-line telecom operations extend to local networks in the Northeast, reaching about 25 million homes and businesses, and nationwide enterprise services.
GF Value and Stock Valuation
The GF Value is a unique indicator of a stock's intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If a stock's share price is significantly above the GF Value Line, the stock may be overvalued, potentially leading to poor future returns. Conversely, if the share price is significantly below the GF Value Line, the stock may be undervalued, suggesting high future returns.
At its current price of $33.97 per share, Verizon Communications (VZ, Financial) has a market cap of $142.8 billion. Based on GuruFocus' valuation method, the stock is possibly a value trap, suggesting caution for potential investors.
Financial Strength and Profitability
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company’s financial strength before deciding whether to buy shares. Verizon Communications has a cash-to-debt ratio of 0.01, ranking worse than 96.22% of companies in the Telecommunication Services industry. This suggests a poor balance sheet, with GuruFocus ranking Verizon Communications’s financial strength as 4 out of 10.
Profitable companies, especially those with consistent profitability over the long term, are generally less risky to invest in. Verizon Communications has been profitable for 10 out of the past 10 years, with an operating margin of 22.21%, ranking better than 82.35% of companies in the Telecommunication Services industry.
Company Growth and Value Creation
Growth is a critical factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Verizon Communications is 0.7%, ranking worse than 64.3% of companies in the Telecommunication Services industry.
Another way to evaluate a company’s profitability is by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Verizon Communications’s ROIC was 6.38, while its WACC came in at 3.57.
Conclusion
In conclusion, the stock of Verizon Communications (VZ, Financial) is estimated to be a possible value trap. The company's financial condition is poor, and its profitability is fair. Its growth ranks worse than 55.39% of companies in the Telecommunication Services industry. For more information about Verizon Communications stock, you can check out its 30-Year Financials here.
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