What's the Intrinsic Value of Verizon?

Verizon (VZ) announced positive third-quarter results this week.  Analysts have been generally impressed.  How does the current share price look from an intrinsic value perspective?

Valuecruncher valuation model of $VZ with interactive assumptions

Valuecruncher produces a valuation of US$37.77 for $VZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 23.8% above the current share price of US$30.50.

Assumptions

• Revenue: Reuters aggregates 22 analysts covering $VZ and these analysts have mean estimates of 2008 and 2009 revenues of US$97.0 billion and US$103.3 billion respectively. For our analysis we have used US$97.0 billion in 2008, US$103.0 billion in 2009 and US$105.0 billion in 2010.
• Profitability: We have used an EBITDA margin of 32.0% in 2008 rising to 33.0% in 2010. Reuters has $VZ‘s EBITD margin at 32.7% last year and 34.4% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$17.5 billion per annum moving forward.
• Discount Rate: 9.0%.
• Terminal Growth Rate: 1.5%.

Our analysis incorporates the cash and debt the $VZ balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None.

Comments

[skwestorange:]

Hi:
I think a more appropriate terminal growth rate given the expected recession length would be 0. Under that scenariao the intrinsic value would be more like $30, the current price of the stock give or take a dollar or two. I expect wireless revenue to be flat to sligh negative and the revenue growht in FIOS will be muted quite a bit for the next two if not three years.

2008 Oct 30 02:34 PM

[Valuecruncher:]

That is a completely fair call.

And why we make the model interactive.

2008 Oct 30 05:33 PM