Compelling Valuation, High Dividend Yield: Consider Verizon Communications Inc. (VZ)

Verizon’s Compelling Valuation

Since the beginning of the year VZ’s stock is up 9.0% while the S&P 500 Index has increased 0.2%, and the Nasdaq Composite Index has lost 5.4%.

However, since the beginning of 2012, VZ’s stock has gained only 25.6%. In this period, the S&P 500 Index has increased 62.8%, and the Nasdaq Composite Index has risen 81.9%. According to TipRanks, the average target price of the top analysts is at $52.64, an upside of 4.5% from its May 18 close price, however, in my opinion, shares could go much higher.

Verizon has compelling valuation; the trailing price-to-earnings is very low at 11.4, and the forward price-to-earnings is also low at 12.44.Furthermore, the price to cash flow is very low at 5.96, and the Enterprise Value/EBITDA ratio is also very low at 6.4.

Moreover, most VZ’s Margins, Growth Rates and Efficiency parameters have been much better than its industry median, its sector median, and the S&P 500 median, as shown in the tables below:

Source: Portfolio123

Summary of Verizon’s Investment Opportunity

In my view, VZ’s stock should be included in every diversified large cap dividend stocks portfolio. The company is generating strong free cash flow, and the dividend yield is high at 4.5%. While first quarter revenue was disappointing, management reaffirmed its previous forecast of flat earnings for 2016.

Verizon Communications Inc. (NYSE:VZ) has compelling valuation; the trailing price-to-earnings is very low at 11.4, and the EV/EBITDA ratio is also very low at 6.4.

In my view, Verizon is well positioned for continued growth. The company remains committed to consistently investing in its networks for the future; its 2015 investments have positioned it for growth and allow it to maintain its network leadership position.

The average target price of the top analysts is at $52.64, an upside of 4.5% from its May 18 close price, however, in my opinion, shares could go much higher.

Disclosure: This article was originally published on Sure Dividend by Arie Goren.