On the four Ms, Verizon Communications earns 55 for management and 26 for moat. The management score rests on a return on invested capital of 6.2% and a gross margin of 45.6% — figures that describe returns closer to the cost of the capital behind them. Debt sits at 1.92x equity. The narrow moat and mixed management are not the same judgement, and the gap between them is where the argument about this business sits.
Three independent anchors set the price worth paying. Growth is modelled at 1.5% a year, the rate measured from the filings. The exit multiple assumed is 8.0x. That produces an intrinsic value of $8.81, a 10-CAP price of $63.86 and a payback time price of $54.66, with the value zone set at the highest of the three, $63.86. Today's price of $45.98 sits inside that zone.
The price sits inside the value zone, but the business scores 26 for moat and 55 for management. Cheap and good are different tests, and only one of them is passed here.
| Price | $45.98 |
| Market cap | $192.0B |
| P/E ratio | 12.0x |
| Return on invested capital | 6.2% |
| Gross margin | 45.6% |
| Debt to equity | 1.92x |
| Free cash flow yield | 11.7% |
| Growth rate used | 1.5% |
| Growth rate measured | 1.0% |
| Exit multiple assumed | 8.0x |
| Company | Moat | Buy price |
| T-Mobile US Inc. (TMUS) | 66 | $181.63 |
| Comcast (CMCSA) | 86 | $67.41 |
| Bce Inc (BCE) | 42 | $29.39 |
| Charter Communications (CHTR) | 65 | $659.07 |
Every number above is built on assumptions that can be changed. In Moatly you can move the growth rate, the exit multiple and the margin of safety and watch every figure recalculate, so you are testing your own view of Verizon Communications rather than accepting ours.