[Here's the full post if you don't just want to read text.](https://riskpremiumresearch.substack.com/p/verizon-valuation)
# Thesis
I feel like some of these telecom names are starting to get too cheap to ignore. They have incredibly stable businesses and actually pretty decent margins. I liken them to Buffett's railroad bet in the 2010s - legacy infrastructure plays that no one wants to touch, but they spit out tons of cash flows.
# Valuation Metrics
Here's a quick snapshot of their current metrics:
* **PE ratio (TTM):** 10.5
* **PE ratio (NTM):** 8.6
* **Dividend Yield:** 6.7%
* **Dividend Payout Ratio:** 67%
* **Revenue:** Stable
* **Net Margins:** Stable^(1)
* **Debt-to-Equity:** 196%
* **Interest Coverage Ratio:** 4.6x
The leverage ratios are meteoric, but I think the underlying cash flows are stable enough to support them pretty easily. I would personally prefer to see them curtail their debt levels, but I also think we have to accept that it's the nature of the business. As soon as you take your foot off the gas or come up for air, someone else will step in and take market share.
# Capital Allocation Hierarchy
Management has laid out how they think about deployment of capital, which I think is a very useful framework to base our analysis on. Here they are, in this order:
1. Investment in the Business
2. 'Ironclad' Commitment to the Dividend
3. Deleveraging
4. Share Repurchases
They actually had a share repurchase program starting in 2019 or so. They never bought back a single share haha. Their latest share buyback program was implemented in 2025 and they've already bought back $2.5B in shares (50 million share)...their first ever repurchase.
With the buyback, they're also able to increase the per-share dividend without increasing the aggregate amount they commit to the dividend.
Number 1 remains front and center. They bought nearly $50B worth of spectrum licenses in 2021. They bought another $3B so far this year. They purchased TracFone in 2021. And they purchased Frontier in 2026. I'll be curious how the most recent Frontier purchase effects the top and bottom line - the stand alone business was treading water so didn't make any considerations to the cash flow numbers in the valuation section.
# Valuation
I did a dividend discount model, including share repurchases and debt paydown. The core assumptions were 2% long-term organic cash flow growth - this is in-line or slightly conservative compared against the past 8 years of underlying growth. Dividends are lifted both through organic growth as well as decreasing share count from stock buybacks and 'freed' interest from deleveraging.
***Fair Value = $65 per share.***
***Expected 5-year return of 12-14% CAGR.***
# Risks
I think the biggest risks are that capex and acquisitions continue to balloon out. They continuously spend money, but it never really seems to show up in the bottom line. So they're essentially just treading water to maintain the status quo. This is fine and the existing cash flows support it, but we can't treat capex here the same as for other businesses - ROIIC doesn't exceed cost of capital from what I can tell, at least not in an expansionary sense. Still, if we treat capex and acquisition as an ordinary, on-going expense, the numbers still work.
