Intrinsic value of Verizon Communications - VZ

Previous Close

$48.41

  Intrinsic Value

$42.08

stock screener

  Rating & Target

hold

-13%

  Value-price divergence*

-3%

Previous close

$48.41

 
Intrinsic value

$42.08

 
Up/down potential

-13%

 
Rating

hold

 
Value-price divergence*

-3%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of VZ stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 196.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -4.29
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  125,980
  128,500
  131,455
  134,833
  138,626
  142,829
  147,440
  152,462
  157,897
  163,753
  170,037
  176,761
  183,934
  191,573
  199,691
  208,305
  217,433
  227,096
  237,315
  248,112
  259,512
  271,541
  284,227
  297,598
  311,687
  326,525
  342,149
  358,593
  375,897
  394,102
  413,250
Variable operating expenses, $m
 
  96,192
  98,342
  100,799
  103,558
  106,615
  109,969
  113,622
  117,576
  121,835
  126,407
  128,577
  133,795
  139,351
  145,256
  151,522
  158,162
  165,191
  172,624
  180,478
  188,770
  197,520
  206,748
  216,475
  226,723
  237,516
  248,881
  260,842
  273,429
  286,672
  300,600
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  98,921
  96,192
  98,342
  100,799
  103,558
  106,615
  109,969
  113,622
  117,576
  121,835
  126,407
  128,577
  133,795
  139,351
  145,256
  151,522
  158,162
  165,191
  172,624
  180,478
  188,770
  197,520
  206,748
  216,475
  226,723
  237,516
  248,881
  260,842
  273,429
  286,672
  300,600
Operating income, $m
  27,059
  32,308
  33,113
  34,034
  35,068
  36,214
  37,471
  38,840
  40,321
  41,918
  43,631
  48,184
  50,140
  52,222
  54,435
  56,783
  59,271
  61,905
  64,691
  67,634
  70,742
  74,021
  77,479
  81,124
  84,964
  89,009
  93,268
  97,750
  102,467
  107,430
  112,650
EBITDA, $m
  42,987
  49,213
  50,345
  51,639
  53,091
  54,701
  56,467
  58,390
  60,472
  62,714
  65,121
  67,696
  70,444
  73,369
  76,478
  79,777
  83,273
  86,974
  90,887
  95,022
  99,388
  103,995
  108,854
  113,975
  119,371
  125,053
  131,037
  137,335
  143,962
  150,934
  158,267
Interest expense (income), $m
  4,085
  4,107
  4,201
  4,397
  4,621
  4,872
  5,151
  5,456
  5,789
  6,149
  6,537
  6,954
  7,400
  7,875
  8,381
  8,919
  9,490
  10,095
  10,736
  11,413
  12,129
  12,884
  13,682
  14,522
  15,409
  16,342
  17,326
  18,361
  19,451
  20,598
  21,805
Earnings before tax, $m
  20,986
  28,201
  28,913
  29,638
  30,448
  31,342
  32,320
  33,384
  34,532
  35,768
  37,093
  41,230
  42,740
  44,347
  46,053
  47,863
  49,781
  51,810
  53,955
  56,221
  58,613
  61,136
  63,797
  66,601
  69,556
  72,667
  75,942
  79,389
  83,016
  86,832
  90,845
Tax expense, $m
  7,378
  7,614
  7,806
  8,002
  8,221
  8,462
  8,726
  9,014
  9,324
  9,657
  10,015
  11,132
  11,540
  11,974
  12,434
  12,923
  13,441
  13,989
  14,568
  15,180
  15,825
  16,507
  17,225
  17,982
  18,780
  19,620
  20,504
  21,435
  22,414
  23,445
  24,528
Net income, $m
  13,127
  20,587
  21,106
  21,635
  22,227
  22,880
  23,594
  24,370
  25,209
  26,111
  27,078
  30,098
  31,200
  32,373
  33,619
  34,940
  36,340
  37,821
  39,387
  41,041
  42,787
  44,630
  46,572
  48,619
  50,776
  53,047
  55,438
  57,954
  60,602
  63,387
  66,317

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,880
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  244,180
  249,030
  254,758
  261,305
  268,656
  276,801
  285,737
  295,468
  306,002
  317,351
  329,530
  342,559
  356,462
  371,265
  386,997
  403,691
  421,382
  440,109
  459,912
  480,837
  502,930
  526,242
  550,827
  576,741
  604,045
  632,801
  663,079
  694,947
  728,482
  763,763
  800,872
Adjusted assets (=assets-cash), $m
  241,300
  249,030
  254,758
  261,305
  268,656
  276,801
  285,737
  295,468
  306,002
  317,351
  329,530
  342,559
  356,462
  371,265
  386,997
  403,691
  421,382
  440,109
  459,912
  480,837
  502,930
  526,242
  550,827
  576,741
  604,045
  632,801
  663,079
  694,947
  728,482
  763,763
  800,872
Revenue / Adjusted assets
  0.522
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
  0.516
Average production assets, $m
  179,388
  182,983
  187,192
  192,003
  197,404
  203,389
  209,955
  217,105
  224,846
  233,184
  242,133
  251,707
  261,923
  272,800
  284,359
  296,626
  309,625
  323,385
  337,936
  353,311
  369,545
  386,674
  404,739
  423,780
  443,842
  464,972
  487,220
  510,636
  535,277
  561,201
  588,468
Working capital, $m
  -3,945
  -4,240
  -4,338
  -4,450
  -4,575
  -4,713
  -4,866
  -5,031
  -5,211
  -5,404
  -5,611
  -5,833
  -6,070
  -6,322
  -6,590
  -6,874
  -7,175
  -7,494
  -7,831
  -8,188
  -8,564
  -8,961
  -9,379
  -9,821
  -10,286
  -10,775
  -11,291
  -11,834
  -12,405
  -13,005
  -13,637
Total debt, $m
  108,078
  110,549
  115,704
  121,597
  128,212
  135,543
  143,585
  152,344
  161,824
  172,038
  182,999
  194,725
  207,238
  220,561
  234,719
  249,744
  265,666
  282,520
  300,343
  319,175
  339,059
  360,040
  382,166
  405,489
  430,062
  455,943
  483,193
  511,874
  542,056
  573,808
  607,206
Total liabilities, $m
  221,656
  224,127
  229,282
  235,175
  241,790
  249,121
  257,163
  265,922
  275,402
  285,616
  296,577
  308,303
  320,816
  334,139
  348,297
  363,322
  379,244
  396,098
  413,921
  432,753
  452,637
  473,618
  495,744
  519,067
  543,640
  569,521
  596,771
  625,452
  655,634
  687,386
  720,784
Total equity, $m
  22,524
  24,903
  25,476
  26,131
  26,866
  27,680
  28,574
  29,547
  30,600
  31,735
  32,953
  34,256
  35,646
  37,127
  38,700
  40,369
  42,138
  44,011
  45,991
  48,084
  50,293
  52,624
  55,083
  57,674
  60,404
  63,280
  66,308
  69,495
  72,848
  76,376
  80,087
Total liabilities and equity, $m
  244,180
  249,030
  254,758
  261,306
  268,656
  276,801
  285,737
  295,469
  306,002
  317,351
  329,530
  342,559
  356,462
  371,266
  386,997
  403,691
  421,382
  440,109
  459,912
  480,837
  502,930
  526,242
  550,827
  576,741
  604,044
  632,801
  663,079
  694,947
  728,482
  763,762
  800,871
Debt-to-equity ratio
  4.798
  4.440
  4.540
  4.650
  4.770
  4.900
  5.030
  5.160
  5.290
  5.420
  5.550
  5.680
  5.810
  5.940
  6.070
  6.190
  6.300
  6.420
  6.530
  6.640
  6.740
  6.840
  6.940
  7.030
  7.120
  7.210
  7.290
  7.370
  7.440
  7.510
  7.580
Adjusted equity ratio
  0.081
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13,127
  20,587
  21,106
  21,635
  22,227
  22,880
  23,594
  24,370
  25,209
  26,111
  27,078
  30,098
  31,200
  32,373
  33,619
  34,940
  36,340
  37,821
  39,387
  41,041
  42,787
  44,630
  46,572
  48,619
  50,776
  53,047
  55,438
  57,954
  60,602
  63,387
  66,317
Depreciation, amort., depletion, $m
  15,928
  16,905
  17,232
  17,604
  18,023
  18,487
  18,996
  19,550
  20,150
  20,797
  21,491
  19,512
  20,304
  21,147
  22,043
  22,994
  24,002
  25,069
  26,197
  27,388
  28,647
  29,975
  31,375
  32,851
  34,406
  36,044
  37,769
  39,584
  41,494
  43,504
  45,618
Funds from operations, $m
  12,694
  37,492
  38,338
  39,240
  40,250
  41,367
  42,590
  43,920
  45,359
  46,908
  48,569
  49,610
  51,504
  53,520
  55,662
  57,935
  60,342
  62,890
  65,584
  68,430
  71,434
  74,604
  77,947
  81,470
  85,182
  89,091
  93,207
  97,538
  102,096
  106,891
  111,934
Change in working capital, $m
  -10,021
  -83
  -98
  -111
  -125
  -139
  -152
  -166
  -179
  -193
  -207
  -222
  -237
  -252
  -268
  -284
  -301
  -319
  -337
  -356
  -376
  -397
  -419
  -441
  -465
  -490
  -516
  -543
  -571
  -601
  -632
Cash from operations, $m
  22,715
  37,575
  38,435
  39,351
  40,375
  41,505
  42,742
  44,086
  45,538
  47,101
  48,776
  49,832
  51,741
  53,772
  55,930
  58,219
  60,643
  63,209
  65,921
  68,786
  71,811
  75,001
  78,366
  81,911
  85,647
  89,581
  93,722
  98,081
  102,667
  107,492
  112,566
Maintenance CAPEX, $m
  0
  -13,906
  -14,185
  -14,511
  -14,884
  -15,303
  -15,767
  -16,276
  -16,830
  -17,430
  -18,076
  -18,770
  -19,512
  -20,304
  -21,147
  -22,043
  -22,994
  -24,002
  -25,069
  -26,197
  -27,388
  -28,647
  -29,975
  -31,375
  -32,851
  -34,406
  -36,044
  -37,769
  -39,584
  -41,494
  -43,504
New CAPEX, $m
  -17,593
  -3,596
  -4,209
  -4,811
  -5,401
  -5,985
  -6,566
  -7,150
  -7,740
  -8,339
  -8,949
  -9,574
  -10,216
  -10,877
  -11,560
  -12,266
  -12,999
  -13,760
  -14,551
  -15,375
  -16,234
  -17,129
  -18,064
  -19,041
  -20,062
  -21,130
  -22,247
  -23,417
  -24,641
  -25,923
  -27,267
Cash from investing activities, $m
  -10,983
  -17,502
  -18,394
  -19,322
  -20,285
  -21,288
  -22,333
  -23,426
  -24,570
  -25,769
  -27,025
  -28,344
  -29,728
  -31,181
  -32,707
  -34,309
  -35,993
  -37,762
  -39,620
  -41,572
  -43,622
  -45,776
  -48,039
  -50,416
  -52,913
  -55,536
  -58,291
  -61,186
  -64,225
  -67,417
  -70,771
Free cash flow, $m
  11,732
  20,073
  20,042
  20,030
  20,090
  20,218
  20,409
  20,660
  20,968
  21,332
  21,751
  21,488
  22,013
  22,591
  23,223
  23,909
  24,650
  25,447
  26,301
  27,214
  28,188
  29,225
  30,326
  31,495
  32,734
  34,044
  35,431
  36,895
  38,442
  40,074
  41,795
Issuance/(repayment) of debt, $m
  -1,358
  2,471
  5,155
  5,893
  6,615
  7,330
  8,043
  8,758
  9,480
  10,214
  10,961
  11,727
  12,513
  13,323
  14,159
  15,024
  15,922
  16,854
  17,823
  18,832
  19,884
  20,981
  22,126
  23,323
  24,573
  25,881
  27,249
  28,682
  30,182
  31,752
  33,398
Issuance/(repurchase) of shares, $m
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -4,060
  2,471
  5,155
  5,893
  6,615
  7,330
  8,043
  8,758
  9,480
  10,214
  10,961
  11,727
  12,513
  13,323
  14,159
  15,024
  15,922
  16,854
  17,823
  18,832
  19,884
  20,981
  22,126
  23,323
  24,573
  25,881
  27,249
  28,682
  30,182
  31,752
  33,398
Total cash flow (excl. dividends), $m
  7,672
  22,544
  25,197
  25,922
  26,706
  27,548
  28,452
  29,418
  30,449
  31,546
  32,712
  33,215
  34,526
  35,914
  37,382
  38,934
  40,572
  42,301
  44,124
  46,047
  48,072
  50,206
  52,453
  54,818
  57,307
  59,925
  62,680
  65,577
  68,624
  71,826
  75,193
Retained Cash Flow (-), $m
  -6,096
  -2,379
  -573
  -655
  -735
  -814
  -894
  -973
  -1,053
  -1,135
  -1,218
  -1,303
  -1,390
  -1,480
  -1,573
  -1,669
  -1,769
  -1,873
  -1,980
  -2,092
  -2,209
  -2,331
  -2,458
  -2,591
  -2,730
  -2,876
  -3,028
  -3,187
  -3,354
  -3,528
  -3,711
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  20,165
  24,624
  25,267
  25,970
  26,734
  27,558
  28,445
  29,395
  30,411
  31,494
  31,912
  33,136
  34,434
  35,809
  37,264
  38,803
  40,428
  42,144
  43,954
  45,863
  47,875
  49,994
  52,226
  54,576
  57,050
  59,652
  62,390
  65,270
  68,298
  71,483
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  18,365
  20,244
  18,573
  16,897
  15,229
  13,588
  11,992
  10,458
  9,005
  7,649
  6,258
  5,161
  4,185
  3,334
  2,606
  1,997
  1,498
  1,098
  786
  549
  373
  247
  159
  99
  59
  35
  19
  11
  5
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. Its Wireless segment offers wireless voice and data services; Internet access on various smart and basic phones, notebook computers, and tablets; and multimedia access, business-focused, location-based, global data, home phone handsets, and high-speed Internet services, as well as network access and value added services to support wireless connections for the Internet of Things (IoT). This segment also provides IoT services that support devices used in fleet management and telematics, energy, agricultural technology, and smart community markets; and wireless devices, such as smartphones and basic phones, tablets, and other Internet access devices. As of February 11, 2016, it had 114.2 million retail connections. The company’s Wireline segment offers high-speed Internet, Fios Internet, and Fios video services; voice services, such as local exchange, regional and long distance calling, and voice messaging services, as well as Voice over Internet protocol services; network products and solutions comprising private Internet protocol (IP), public Internet, Ethernet, and optical networking services; IT infrastructure services that include collocation and managed hosting services; cloud services, which comprise computing, storage, backup, recovery, and application platforms; and business communications services. This segment also provides data security, voice and data, cloud and IT, business communications, IoT, and mobility services; and data, voice, local dial tone, and broadband services primarily to local, long distance, wireless, and other carriers. The company was formerly known as Bell Atlantic Corporation and changed its name to Verizon Communications Inc. in June 2000. Verizon Communications Inc. was founded in 1983 and is headquartered in New York City, New York.

FINANCIAL RATIOS  of  Verizon Communications (VZ)

Valuation Ratios
P/E Ratio 15
Price to Sales 1.6
Price to Book 8.8
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow 38.5
Growth Rates
Sales Growth Rate -4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.5%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 468.1%
Total Debt to Equity 479.8%
Interest Coverage 6
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 10.2%
Ret/ On T. Cap. - 3 Yr. Avg. 10.6%
Return On Equity 67.4%
Return On Equity - 3 Yr. Avg. 76.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 59.2%
Gross Margin - 3 Yr. Avg. 60%
EBITDA Margin 32.5%
EBITDA Margin - 3 Yr. Avg. 32.7%
Operating Margin 21.5%
Oper. Margin - 3 Yr. Avg. 20.7%
Pre-Tax Margin 16.7%
Pre-Tax Margin - 3 Yr. Avg. 16.7%
Net Profit Margin 10.4%
Net Profit Margin - 3 Yr. Avg. 10.5%
Effective Tax Rate 35.2%
Eff/ Tax Rate - 3 Yr. Avg. 30.6%
Payout Ratio 70.6%

VZ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VZ stock intrinsic value calculation we used $125980 million for the last fiscal year's total revenue generated by Verizon Communications. The default revenue input number comes from 2016 income statement of Verizon Communications. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our VZ stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 9.8%, whose default value for VZ is calculated based on our internal credit rating of Verizon Communications, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Verizon Communications.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of VZ stock the variable cost ratio is equal to 74.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for VZ stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.8% for Verizon Communications.

Corporate tax rate of 27% is the nominal tax rate for Verizon Communications. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the VZ stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for VZ are equal to 142.4%.

Life of production assets of 12.9 years is the average useful life of capital assets used in Verizon Communications operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for VZ is equal to -3.3%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $22524 million for Verizon Communications - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 4051.4 million for Verizon Communications is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Verizon Communications at the current share price and the inputted number of shares is $196.1 billion.

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COMPANY NEWS

▶ The 2 Best Wireless Stocks To Buy in 2017   [06:03AM  Motley Fool]
▶ How Verizon Communications Inc. Makes Most of Its Money   [Aug-16-17 08:56PM  Motley Fool]
▶ Best Low-Cost Cell-Phone Plans   [12:12PM  Consumer Reports]
▶ A Look at AT&Ts Customer Retention   [09:07AM  Market Realist]
▶ [$$] Verizon to Compete With AT&T for Public-Safety Customers   [Aug-15-17 08:57PM  The Wall Street Journal]
▶ T-Mobile Leads the Field in Network Speeds   [10:36AM  Market Realist]
▶ What's Up With Globalstar Inc.?   [08:21PM  Motley Fool]
▶ 3 Dividend Stocks Ideal for Retirees   [07:48PM  Motley Fool]
▶ Verizon to add 100 new high-wage jobs, invest $2M in renovations   [02:00PM  American City Business Journals]
▶ 5 Dividend Stocks That Pay Out Over $8 Billion a Year   [Aug-13-17 07:23AM  Motley Fool]
▶ HBO offers $250,000 'bounty payment'   [04:59PM  Reuters Videos]
▶ How NOT to get ripped off when buying a new TV   [01:14PM  Yahoo Finance Video]
▶ Verizon Struggles to Sign Up Studios for Online TV   [Aug-10-17 02:25PM  Bloomberg]
▶ US Market Indexes Lower on Wednesday   [07:56AM  GuruFocus.com]
▶ Where Verizons Valuation Stands next to Peers   [07:37AM  Market Realist]
▶ How Is Verizon Progressing on the 5G Front?   [10:38AM  Market Realist]
▶ What Analysts Recommend for Verizon   [10:35AM  Market Realist]
▶ Whats Verizons Capex Outlook?   [08:09AM  Market Realist]
▶ As Verizon Shares Fall, Yield Rises to 4.7%   [06:35AM  24/7 Wall St.]
▶ Why Verizons FiOS Video Pressures Persist   [03:35PM  Market Realist]
▶ Why Verizons Wireless Earnings Fell   [07:36AM  Market Realist]
▶ [$$] Wells Fargo Marvels at Verizon's Appetite for Fiber   [Aug-05-17 01:31AM  Barrons.com]
▶ What Verizons EBITDA Trend Indicates   [Aug-04-17 10:37AM  Market Realist]
▶ How Verizons Revenue Is Trending   [09:10AM  Market Realist]
▶ What Drove Verizons 2Q17 Earnings Growth?   [07:37AM  Market Realist]
▶ Whats Verizons 2017 Outlook?   [Aug-03-17 04:56PM  Market Realist]
▶ Faber Report: The future of 5G   [09:42AM  CNBC Videos]
Stock chart of VZ Financial statements of VZ
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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