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Verizon Shares Ring True For Value

By Wayne Pinsent

Tickers in this Article: VZ, T, VOD, TWX, CVC

Verizon Communications (NYSE:VZ) released quarterly results on Monday that showed strength in a weak economic environment. The country’s second largest telecommunications company had a healthy rise in quarterly profits, helped by larger than expected growth in its subscriber base. The company’s weathering of the current economic storm, and its contracted clients make this is a sunny and attractive stock.

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Answering The Call
Verizon reported first quarter net income of $1.64 billion (57 cents per share), a 9.8% increase from the $1.495 billion (51 cents per share) reported a year ago. Adjusting for special items and discontinued operations, the company earned 61 cents per share, compared with 54 cents a year earlier. The results were in line with analyst estimates, and displayed strength at the core of the company. Operating revenues rose 5.5% for the quarter to $23.83 billion from $22.58 billion a year earlier. (To learn more about discontinued operations, see The One-Time Expense Warning.)

The company saw additions to its consumer base across the board, including the highest net wireless customers additions in the industry. Verizon gained 1.5 million net wireless customers bringing its total wireless client base to 67.2 million, including 65.2 million retail customers, up 11.5%. The 1.5 million wireless customers are part of the joint venture with Vodafone Group Plc (LSE:VOD.L)(NYSE:VOD) and was higher than the 1.42 million expected by analysts. The company leads the industry for market share in this area.

The company has also been venturing further into broadband internet and TV with its new FiOS line. Verizon added 263,000 net new FiOS TV clients, for a total of 1.2 million customers, and 262,000 net new FiOS Internet clients, for a total of 1.8 million. In this area Verizon faces off against competitors like Time Warner (NYSE:TWX) and Cablevision (NYSE:CVC) in New York, but has more of a national reach than much of its competition. The quarter was quite impressive all around and shows that the company is in a strong position moving forward.

Telecom Winners
Both Verizon and AT&T (NYSE:T) were both largely unaffected by economic worries. Despite stagnant growth in the U.S. economy - and very real concerns that we are headed for, or are in, a recession - the two biggest domestic telecom’s are growing strong. Verizon’s quarter was quite impressive, and helped the stock rise around 2% from Friday to open at 37.86 on Monday. Both Verizon and AT&T trade at around 11-times forward earnings, and I think both are good long-term investments. The 4.7% and 4.1% dividends, respectively, make the stocks even more attractive. (Keep reading about this subject in Recession: What Does It Mean To Investors? and How and Why Do Companies Pay Dividends?)

The Bottom Line
Verizon released a great quarter showing near double digit earnings growth, staving off any economic concerns. The company made big gains to its consumer base, which will help the company propel growth in future quarters. I think the stock is stable with room for more growth, also the near 5% dividend makes it even more attractive in the current shaky market.

By Wayne Pinsent

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