Valuation Verizon2-20-2016 Current share price:$50.86
You can’t review one company (AT&T) out of a near duopoly without reviewing the other. Here is a valuation of Verizon Communications. Verizon Communications provides communications, information and entertainment products and services. It has both wireless and wireline services. Wireless products and services include voice and data services and equipment sales. Wireline products include voice, data and video communications products and services. Verizon operates in the United States and across the world.
ValuationThe simplest valuation is to compare Analyst target to the current price. The analyst target is only 1% above the current price. The safety factor is 1%, which suggests limited upside potential remaining.
The next simplest measures are Graham valuations. 4 variations are used using different time tables for calculating EPS and EPS growth. The staggering valuations based upon 1 and 3 year numbers are products of the company upping its leverage. To use this methodology accurately the numbers would have to be corrected for the increased leverage.
Relative valuations are based upon historic multiples. For a slow growing, large cap company such as Verizon, buying at multiples less than the historic values represent a good value. Based on historic multiples Verizon is overvalued.
Intrinsic valuations include discounted cash flow (DCF), dividend discount model (DDM), and Earnings Power Value (EPV). Two variations of EPV are used. The DCF and DDM model value Verizon at mid 20’s to low 30’s, suggesting considerable downside potential. EPV 1 values Verizon at $53.47 implying a low upside potential based on the Current share price. EPV method 2 punishes Verizon severely for the recent increase in debt load. Verizon generates enough stable cash flow that the debt load is high, but manageable. EPV method 2 is overly conservative and can be ignored.
Simple Moving Average
VZ is trading above its 13 day simple Moving Average. This is a sign of a bullish trend. The moving average is rising adding a reaffirmation of the bullish trend.
MACD is indicating a weak bearish signal. The MACD is above 0, which implies bullish moving averages. The MACD has crossed below its 9-day moving average, which shows that momentum has begun to slow.
On Balance Volume
OBV presently offers a bearish signal. The slope of the OBV is negative, suggesting a lack of buying interest.
Vz is currently overvalued by at least 10%. By pure valuation techniques Vz is overvalued by ~40%, however with the current low interest environment and Vz sizeable and stable dividend, income investors will consistently hold Vz at a technically overvalued range. Historic ratios show that this range is ~10-15% below its current share price.
Technical indicators suggest that the stock had short term momentum that is currently fading. With the intrinsic value significantly below the current share price and the MACD suggesting slowing momentum, the upside of trading Vz does not justify the risk and should be avoided. Value investors and for dividend growth investors would benefit from waiting for a lower entry price.
This website expresses my own opinion. I am not a financial advisor. All opinions, research, analyses, and other information provided on this website are provided as general market commentary and do not constitute investment advice.