VZ Verizon
Durable cash cow priced near fair value; the yield is safe, but growth and leverage cap upside.
The story
Verizon is a mature US wireless and fiber utility with a scale moat: spectrum holdings, a dense network, and roughly 90M+ postpaid relationships in a three-player market with rational pricing. Growth is low single digits, coming from price increases, fixed wireless access, and fiber bundling after the Frontier deal, while T-Mobile and cable MVNOs keep pressure on share and promotions. It sits in late maturity: a cash-yield vehicle with heavy capital intensity and a large debt load.
Y1 growth of 3% reflects Frontier fiber revenue plus modest wireless pricing, then fades toward inflation-like 1.5% terminal growth, well under the 5.18% risk-free rate. The 22% margin matches normalized recent results (excluding the 2023 impairment year) with no expansion to a peak, and sales-to-capital stays near the observed 0.53, consistent with a capital-heavy network business. Beta sits just below the 0.8 industry anchor because of subscription stability, and a small failure probability reflects $139B of net debt.
Value drivers
| Revenue growth (Y1) | 3.0% |
| Terminal growth | 1.5% |
| Forecast horizon | 5y |
| Target operating margin | 22.0% |
| Years to target margin | 3 |
| Sales-to-capital | 0.55 |
| Beta | 0.75 |
| Failure probability | 2.0% |
| Cost of capital (WACC) | 7.8% |
| Terminal WACC | 8.5% |
Valuation bridge
| PV of explicit FCFF | 76.75B |
| PV of terminal value | 219.15B |
| Equity value | 152.40B |
| ÷ shares → per share | $36.68 |
News
neutral -0.10 · 8 articles
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- Can Verizon Communications (VZ) Stay Cheap As 6G Plans Expand?
- Verizon Stock Is 8% Off Its September Peak. Here’s the Q3 Test Its CEO Set
- The Cheapest Stocks in the S&P 500: Are They a Bargain or a Trap?
- Comcast Broadband Outlook Weakens as Competition Intensifies, KeyBanc Says
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 143.06B | 3.0% | 21.3% | 23.61B | 7.58B | 16.04B | 14.87B |
| 2 | 146.82B | 2.6% | 21.6% | 24.66B | 6.83B | 17.83B | 15.33B |
| 3 | 150.12B | 2.2% | 22.0% | 25.65B | 6.01B | 19.64B | 15.67B |
| 4 | 152.94B | 1.9% | 22.0% | 26.13B | 5.12B | 21.01B | 15.54B |
| 5 | 155.23B | 1.5% | 22.0% | 26.52B | 4.17B | 22.35B | 15.33B |
Key risks
- Wireless price competition from T-Mobile and cable MVNOs eroding ARPU and postpaid share
- High leverage and refinancing costs in a 5%+ rate environment constraining dividend and capex
- Fiber integration and buildout costs (Frontier) running above plan, depressing returns on capital
Catalysts
- Frontier synergies and fiber-wireless convergence lowering churn
- Deleveraging toward target net debt/EBITDA, supporting dividend safety and a rerating