Verizon Communications (VZ)

Total return at 5 years: 7.6%/year = 0.7% appreciation + 6.9% dividend. The target price ($44) is ex-dividend; the $15 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $94 · Multiples $49) exceeds the market price ($43).

Today — fairly valued: at $43 trades ~12.0% below its value discounted to today (~$49); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($44) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$32.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($43) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-8.3%/year) than we project (2.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$14.9 bn of owner earnings in year 5 (vs ~$25.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBITDA (operador inalámbrico). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Rolling grid: year 0 is the real TTM (revenue US$138.9 billion as of Jun 30, 2026). Verizon is one of the three U.S. national carriers (~147M wireless retail connections + ~14M broadband at Dec-2025), with modest growth and worsening postpaid churn (from 1.06% to 1.15% in 2025). It is valued on EV/EBITDA (the telecom convention): the low multiple (6.5×, near the floor of the [6,9] band) charges for capital-intensive network capex (§4 — at ~6.5× EBITDA it is equivalent to ~11× EBIT) — no growth premium. It is EV-level: net debt of ~$163.5bn (gross debt $165.2bn − cash $1.8bn at Jun 30, 2026, raised by the closing of the Frontier acquisition in Jan-2026, ~$22.3bn: $9.4bn in cash + $12.9bn of assumed debt) is subtracted from EV. Revenue decelerates from +2.6% to +1.5% (the real trajectory FY23 −2.1% → FY24 +0.6% → FY25 +2.5% → TTM +1.4% as of Jun 30, 2026; the path starts at the high end of that band — in 2025 Consumer +3.8% offset the Business decline of −1.6%) and the EBITDA margin recovers modestly (34.6%→35.8%), supported by the workforce reduction program (over 13,000 positions, severance of $1.7bn in 2024 and 2025) and capex past its peak (FY22 $23.1bn → FY25 $17.0bn → FY26 guidance $16.0-16.5bn). reinvestsExcess: the ~43% of FCF retained today (beyond the dividend, with no buybacks since 2024) funds the Frontier integration and deleveraging — it does not accumulate excess cash. No share path: there is no material net buyback to model (the new $25bn authorization, Jan-2026, is an unexecuted ceiling — §6, nothing is projected without revealed behavior). The incremental ROIC on the capital already deployed in Frontier is negative today — the disconfirmer to watch.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $44 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $43, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $44 in 5 years plus $15 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $49. Against the current market price ($43), the margin of safety is 12.0% (trades below the maximum → there is margin) and the total return at that price would be 7.6% annually.

• Multiple vs quality. EV/EBITDA 7× — with no premium. Reasonable for the growth profile, not a bargain.
• Reverse DCF. The price does not discount demanding expectations — consistent with a mature business without an accelerated-growth narrative priced in.
• Margin of safety. The total return (~+8%/year) comes almost entirely from the dividend, not a re-rating — margin of safety limited in the classic sense of a discount to value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✕ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (103%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. ROIC ~8.5% — below the 10% bar (spectrum/network/Frontier debt weigh on invested capital). Recent incremental ROIC is negative — to be watched closely.
• Quality of cash generation. Real FCF (OCF−capex) ~$20.3bn TTM, of high quality (recurring, capital-heavy but predictable). SBC is immaterial (~$0.8bn, <1% of revenue) — no SBC trap.
• Margin and stability. EBITDA margin ~34.2% TTM, stable over time (34.5-34.8% over the past 4 fiscal years) — predictable earnings despite competition.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Verizon's engine is connection volume × average revenue per account (ARPA), in a business dominated by Consumer (~79% of revenue): postpaid wireless (95.7M connections, ARPA +2.3%) + Fios fiber + FWA fixed wireless broadband (the fastest-growing vector, +25.4%, with a very high incremental margin because it uses already-built network capacity). Business (~21%) is a drag: Enterprise/Public Sector and Wholesale are declining due to competition and enterprise customer consolidation. The Frontier acquisition (fiber, closed Jan-2026) expands the broadband footprint but does not yet appear in these KPIs (post-close).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth (revenue +1.4% TTM; +2.5% in FY25) is modest and real from FY23's −2.1% — it is not an artifact of FX or an isolated easy comp.
• Growth engine. Consumer (wireless + FWA) is nearly the entire engine; Business is declining. FWA (+25.4%) is the fastest-growing vector, with a high incremental margin.
• Deceleration and competition. Postpaid churn is worsening — the central risk that recent growth may not be sustainable without ceding further price.

• Relevant in 10 years (recurrence). Wireless and broadband service are critical, recurring consumer infrastructure (monthly subscription). High recurrence; market saturation is the structural limit.
• Pricing power. Moderate: ARPA is rising (+2.3%) but churn is worsening — competition limits the ability to raise prices without losing customers.
• Moat and its direction. A wide moat (spectrum + network + oligopoly), mixed direction: stable in infrastructure but under pressure in customer retention (postpaid churn 1.06% → 1.15% in 2025).
• Capital cycle. A mature sector with very high capital barriers to entry (spectrum + network); the risk is not a new entrant but the reallocation of share among the three existing carriers.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (net debt / EBITDA)Net debt / EBITDA 3.4x
• !Interest coverage (EBIT / interest)3.9x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 103% of ROIC
• ✕Value creation (ROIC − 10% bar)-2pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.9x — no over-investment
• !Float / working capitalConsumes cash $1 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.6% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Gross debt ~$165.2bn at Jun 30, 2026 (from $158.2bn at Dec-2025, peaking at ~$172.5bn after Frontier); net debt/EBITDA ~3.4× — higher than a year ago, but investment grade and manageable with recurring FCF.
• Coverage and cash. Interest coverage ~3.9× (EBIT/interest expense, TTM); real FCF ~$20.3bn TTM covers the dividend ($11.5bn) with margin, even with sustained capex.
• Frontier integration. The incremental ROIC for the closing quarter is already negative — the largest recent capital bet has not yet demonstrated value creation.

• Skin in the game. Insider ownership unverified (proxy not parsed). The CEO (Schulman) is a recent external hire, without a track record of his own yet at Verizon.
• Capital allocation. Consistent dividend (19th increase) + disciplined capex (declining post-5G peak) + the Frontier acquisition (~$22.3bn) as the recent big bet, with incremental ROIC still negative.
• Integrity / normalization. The filing transparently discloses one-off charges (severance, pension remeasurement, asset restructuring) and materialized risks (cyberattack, service outage).

• There is no clearly identifiable source of discount: the price already reflects the low-growth profile (revenue +1-3%/year), competitive pressure, and the leverage recently raised by Frontier.
• There is no evident perception-versus-reality gap against the market: the multiple is the standard one for a telecom without a growth premium.
• The return available is mostly the dividend (6.6% yield) — attractive as income, but not evidence that the business is undervalued relative to its economic reality.

With no identifiable missing buyers or motivated sellers (§3 Step 9): Verizon does not appear to be cheap in the sense that the market is wrong — the price already reasonably incorporates its risk/growth profile. This is a case of defensive-income valuation (high dividend yield) rather than a classic margin-of-safety discount.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at ~0%/year (+1% total): the margin of safety protects the downside. The bull (+15%/year, +104% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Competition. The central disconfirmer: postpaid churn is worsening — if it accelerates, nearly the entire engine of consolidated growth slows.
• Frontier integration. $22.3bn of capital deployed with a negative incremental ROIC today; if the synergies fail to arrive, the acquisition destroys value.
• Leverage. Gross debt ~$165.2bn at Jun 30, 2026 after Frontier — sensitive to rates and to an adverse credit event; pressures dividend sustainability, the largest part of this thesis's return.
• Cybersecurity and critical infrastructure. A materialized nation-state attack (Salt Typhoon) + a service outage in early 2026 — operating risks already evidenced, not hypothetical.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 9% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A slow grower growing 2% at a multiple/growth of 3.6 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 9% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -8% vs our 2%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -8%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: efficient scale, intangibles, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -8%, within what we project (2%) — the story squares with the numbers.