Verizon Communications: A Contrarian Investment Opportunity

Verizon Communications Inc. (VZ) stock is highly favored by both Wall Street and Main Street investors. However, based on the Graham number and P/E ratio, the author suggests betting against the crowd and remaining cautious about VZ stock.

Verizon Communications Inc. (VZ) has garnered significant attention from both Wall Street and Main Street investors. However, a closer examination of the company's financial metrics, particularly the Graham number and P/E ratio, suggests a need for cautious optimism. This article explores the reasons behind this perspective and provides a balanced view of VZ stock.

Financial Metrics and Valuation

Verizon's stock price has seen a steady increase, closing at $44.23 on September 2, 2025, up 7.22% year-over-year. However, when evaluating the stock using the Graham number and P/E ratio, a more nuanced picture emerges. The Graham number, calculated as 22.37 times the earnings per share (EPS) and 20.62 times the book value per share, suggests a valuation of $42.65. In comparison, the stock's current market price is significantly higher, indicating a potential overvaluation [1].

The P/E ratio of 10.26x also raises questions about the stock's attractiveness. While the ratio is lower than the industry average of 12.5x, it is still higher than the historical average of 9.5x. This discrepancy suggests that investors are paying a premium for Verizon's growth prospects, which may not be fully justified by its current earnings [1].

Market Sentiment and Technical Indicators

Despite the cautious valuation metrics, the market has shown a generally positive sentiment towards VZ. The stock has overperformed its industry peers by 0.08 percentage points and is up 17.68% from its 52-week low. However, technical indicators such as the Relative Strength Index (RSI) and bearish engulfing patterns suggest a potential correction in the near future [2].

Analysts have maintained a neutral stance, with an average rating of 3.00 from five institutions, while retail investor sentiment shows a 50.3% inflow optimism. This duality reflects a mix of confidence in Verizon's operational strength and caution about the long-term implications of its debt-heavy capital structure [2].

Capital Structure and Dividend Sustainability

Verizon's mixed securities shelf offering, announced in August 2025, is a strategic move aimed at funding its $20 billion acquisition of Frontier Communications while preserving financial flexibility and shareholder value. The offering, which includes up to $10 billion in new securities, reflects a deliberate reduction in leverage compared to previous years [1].

However, the equity component of the offering introduces potential dilution risks. While the $10 billion shelf size is substantial, Verizon's focus on debt issuance suggests a preference for preserving equity value. This approach aligns with S&P Global Ratings' affirmation of Verizon's BBB+ rating, which cites the company's conservative capital structure and disciplined debt management [1].

Conclusion

Verizon Communications Inc. (VZ) stock is highly favored by both Wall Street and Main Street investors. However, a closer examination of the stock's valuation metrics, market sentiment, and technical indicators suggests a need for cautious optimism. While the company's operational strength and growth prospects are undeniable, the potential overvaluation and the risks associated with its debt-heavy capital structure warrant a more nuanced view. Investors should monitor the execution of Verizon's 6G and Frontier integration plans to determine if the increased debt load will generate sufficient returns to justify the investment.

References:
[1] https://www.ainvest.com/news/verizon-mixed-shelf-offering-balancing-capital-flexibility-shareholder-high-stakes-expansion-era-2508/
[2] https://www.wallstreetzen.com/how-to-buy-verizon-stock