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Verizon Communications Inc. Message Board

  • loshakamiaka loshakamiaka Apr 6, 2006 4:37 PM Flag

    Sum of the Parts Value

    My sum of the parts value for each of VZ's components that management wants to keep (Wireless and high growth parts of Domestic Telecom)is north of $23, and the value of the Info Svcs division could be around $6-7 per share. That means that the market is saying that the rest of the Domestic Telecom business plus the cash from the International division sale is worth $4 per share. (International Division sale resulted in about $1.33 per share in cash, so Domestic Telecom is implied to be at about $2.66 per share).

    I like the potential spin off play here for the Wireless business. While the wireless division can spin off and attract a PE multiple closer to the 29.8x of Sprint/Nextel (hence the $23 share value), the Domestic Telecom rump is left to be acquired by another player. It would need to attract a 6x PE multiple in order to be worth greater than $4 per share. With AT&T at an 18.6x PE, I see the chance of a deal getting done as fairly good.

    Even more interesting is the potential for the Info Svcs business, which I loosely estimate is worth $7 per share. That may be a little on the rich side, but it's inline with the BCE deal done in Canada a little while back.

    Anyhow, I'm in today at the upper $33's and expect that the next year will see significant value enhancements created through divestitures / spin offs. Forget trying to time the market here: I think that a $42 share price by the end of the year is in the making for this company who's ROIC is 400 bps above its cost of capital.

    And the 4.7% yield doesn't exacly hurt, either.

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    • I do not believe splitting wireless off is the answer. I think doing that would be suicide for the rest of the company. Selling/spinning information services division would be a winner though, as well as putting up some of domestic telecom's most rural serving areas for sale.

      See message 153790:

      • 1 Reply to cocacola08
      • To your point, I agree that the split would be suicide for the Domestic Telecom. My argument is that it's better than having Domestic Telecom commit homicide on the Wireless unit.

        The reason why I think that in the long run the wireless division will separate from the Domestic Telecom division (besides the fact that management has stated this, of course!) is that Domestic Telecom has a cap on its profitability. Many of the 28 states in which VZ competes have regulatory caps on the profitability of those operations, usually equal to VZ's cost of capital, which is around 8.1 - 8.3%. The result is that while VZ's profits are capped, its potential losses are unlimited. Combine this with increased competition, large capital expenditure needs AND union issues, and you have a very good reason to split the units apart from each other. Otherwise, the Domestic Telecom unit could drag the Wireless segment down.

        If management is shrewd, they will take as much cash flow generated from Domestic Telecom as possible and use that cash to invest in the Wireless network expansion until the split occurs.

    • I like your analysis. The only way to create any real shareholder value is to break-up Verizon.

      • 1 Reply to drains47
      • If you've posted any messages when Verizon stock was trading higher, could you let me know approximately when they were posted or the message numbers? I don't recall any. The only ones I see are when the stock is trading down, particularly in early part of the trading session, but never when it trades up - and there have been plenty of times when the shares are trading higher. My view of Verizon has been and will be long-term and pragmatic, which is why I have no problem holding the shares; everything I've learned about the company suggests it ranks in the top 5 of the major telco's (although it seems that's about all that are left!) and I'd suggest (again) that you steer clear of the telecom sector and avoid this message board because both seem to be a waste of your time. Thanks and have a nice day!

    • loshakamiaka - Welcome aboard!!! VZ is the place to be. We all know we are going up here, and this is for sure a long term holding.

      Good chioce.

      Long on VZ!

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