According to my discounted cash flow model, Verizon Communication Inc. (NYSE:VZ) is currently 40% undervalued and this is supported via a multiples analysis. Despite uncertainty in VZ's ability to grow, current market valuation is not necessarily the result of such questions. Regardless of VZ's uncertain outlook, they seem to be the favorite in the telecom industry when it comes to future innovation.
How will Verizon grow?
A quick glance at consolidated revenues shows a mere growth of $54 million from FY 2016 to FY 2017. Wireless services revenue was the bulk of revenue loss, totaling an approximate loss of half of a billion dollars from 2016 to 2017. VZ has been an industry leader in wireless services within the telecom industry, and this has led to VZ suffering as a result of ongoing price competition with other large telecom companies. VZ's top two competitors, in recent history, have been AT&T (NYSE:T) and T-Mobile (TMUS). In terms of download speed between these competitors, VZ holds a significant edge over TMUS and T. Verizon also boasts more reliable coverage compared to its competitors. However, VZ's wireless plans are typically more costly in comparison to its competitors. Therein lies the problem, as its competitors have been lowering their prices in order to make up for the difference. This has forced VZ to significantly lower prices in order to stay competitive, which has led to a shrinkage in wireless services revenue.
