Stock Analysis on Net

Verizon Communications Inc. (NYSE:VZ)

Present Value of Free Cash Flow to Equity (FCFE) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Verizon Communications Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 7.61%
01 FCFE0 -8,098
1 FCFE1 = -8,098 × (1 + 0.00%)
2 FCFE2 = × (1 + 0.00%)
3 FCFE3 = × (1 + 0.00%)
4 FCFE4 = × (1 + 0.00%)
5 FCFE5 = × (1 + 0.00%)
5 Terminal value (TV5) = × (1 + 0.00%) ÷ (7.61%0.00%)
Intrinsic value of Verizon Communications Inc. common stock
 
Intrinsic value of Verizon Communications Inc. common stock (per share) $—
Current share price $48.94

Based on: 10-K (reporting date: 2021-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 3.31%
Expected rate of return on market portfolio2 E(RM) 13.03%
Systematic risk of Verizon Communications Inc. common stock βVZ 0.44
 
Required rate of return on Verizon Communications Inc. common stock3 rVZ 7.61%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rVZ = RF + βVZ [E(RM) – RF]
= 3.31% + 0.44 [13.03%3.31%]
= 7.61%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Verizon Communications Inc., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Dividends declared 10,532  10,284  10,070  9,853  9,525 
Net income attributable to Verizon 22,065  17,801  19,265  15,528  30,101 
Operating revenues 133,613  128,292  131,868  130,863  126,034 
Total assets 366,596  316,481  291,727  264,829  257,143 
Equity attributable to Verizon 81,790  67,842  61,395  53,145  43,096 
Financial Ratios
Retention rate1 0.52 0.42 0.48 0.37 0.68
Profit margin2 16.51% 13.88% 14.61% 11.87% 23.88%
Asset turnover3 0.36 0.41 0.45 0.49 0.49
Financial leverage4 4.48 4.66 4.75 4.98 5.97
Averages
Retention rate 0.49
Profit margin 16.15%
Asset turnover 0.44
Financial leverage 4.97
 
FCFE growth rate (g)5 0.00%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net income attributable to Verizon – Dividends declared) ÷ Net income attributable to Verizon
= (22,06510,532) ÷ 22,065
= 0.52

2 Profit margin = 100 × Net income attributable to Verizon ÷ Operating revenues
= 100 × 22,065 ÷ 133,613
= 16.51%

3 Asset turnover = Operating revenues ÷ Total assets
= 133,613 ÷ 366,596
= 0.36

4 Financial leverage = Total assets ÷ Equity attributable to Verizon
= 366,596 ÷ 81,790
= 4.48

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.49 × 16.15% × 0.44 × 4.97
= 0.00%


FCFE growth rate (g) forecast

Verizon Communications Inc., H-model

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Year Value gt
1 g1 0.00%
2 g2 0.00%
3 g3 0.00%
4 g4 0.00%
5 and thereafter g5 0.00%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (2 – 1) ÷ (5 – 1)
= 0.00%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (3 – 1) ÷ (5 – 1)
= 0.00%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 0.00% + (0.00%0.00%) × (4 – 1) ÷ (5 – 1)
= 0.00%