Verizon (VZ) Stock Looks Like A Bargain On Earnings While Returns Stay Strong

Verizon Communications stock is coming off a strong three year run, with the share price up 60.9%. However, its current checks still suggest the market may be pricing it at a discount. Over the past three years, Verizon Communications has returned 60.9%, which puts more focus on whether the recent share price now reflects its fundamentals. Partnerships such as the new 5G connectivity deal for BMW vehicles can support expectations for future cash flows. At the same time, cost cutting moves...

Track your investments for FREE with Simply Wall St, the portfolio command center trusted by over 7 million individual investors worldwide. Verizon Communications stock is coming off a strong three year run, with the share price up 60.9%. However, its current checks still suggest the market may be pricing it at a discount.

- Over the past three years, Verizon Communications has returned 60.9%, which puts more focus on whether the recent share price now reflects its fundamentals. - Partnerships such as the new 5G connectivity deal for BMW vehicles can support expectations for future cash flows. At the same time, cost cutting moves including planned layoffs highlight execution and expense risks that may affect how investors think about its earnings power.

- On Simply Wall St's broad valuation checks, Verizon Communications screens as cheap in 5 of 6 tests, indicating the overall framework leans toward the stock looking undervalued based on current metrics. The issue now is whether Verizon Communications' recent share price still underestimates its longer term earnings and cash flow potential, or if much of that appeal is already reflected. Is Verizon Communications a Bargain on Earnings?

The P/E ratio is a useful way to look at Verizon Communications because earnings are still a central anchor for how investors value large telecom stocks. Verizon Communications trades on a P/E of 10.2x, compared with a telecom industry average of 17.3x and a peer group average of 8.7x, so the stock sits below the broader sector but a little richer than the immediate peer set. A more tailored fair multiple for Verizon Communications, which factors in its size, margins, sector profile and risks, is 14.3x.

This represents a sizeable gap to the current 10.2x P/E and indicates that the stock is priced at a discount to what this framework would imply. Recent partnerships such as the BMW 5G deal show the company is still investing to support its earnings profile. For investors comparing telecom options on earnings, Verizon Communications appears to offer more P/E value than the wider industry benchmark.

Overall, Verizon Communications appears undervalued on its P/E multiple relative to both the sector and this fair value benchmark.