Slow and steady for Verizon

Verizon's disappointing investors, but you don't need shock and awe to rate a good buy.

By Jim J. Jubak Feb 15, 2010 3:03PM

Jim JubakWhen Verizon (VZ) reported fourth-quarter earnings on Jan. 26, there were no real surprises. And that was disappointing to investors who were looking for signs that a rising economy was lifting margins in Verizon's legacy landline business or who were hoping for some sign that Apple (AAPL) was going to strike a deal with Verizon to sell the iPhone.


Didn't happen.


So, investors are stuck with the same old story -- which fortunately is pretty good despite its lack of surprises.


Verizon reported fourth-quarter 2009 earnings of 54 cents a share (matching Wall Street projections) and revenue of $27.09 billion (just short of the analyst consensus at $27.33 billion.)


The company added 2.2 million net wireless customers (that's before the effect of acquisitions) in the quarter. For the critical FiOS Internet and cable TV unit, the company added another 153,000 for each service. That brought total Internet customers to 3.4 million and total TV customers to 2.9 million.


Looking a little deeper into the numbers, Verizon strikes me as a second-half-of-2010 story.


Right now the company is using higher handset subsidies to grow its smartphone business. Only 26% of Verizon's wireless customers own smartphones (versus 40% or more at AT&T, thanks to the iPhone). Smartphone owners use more profitable data and broadband services, so increasing the percentage of customers with smartphones is crucial to driving margins higher.


Of course, as AT&T's (T) problems show, if you drive up the number of customers using these services, you'd better build out your network to handle the traffic. For Verizon, that means higher capital spending on wireless in 2010.


The company's legacy landline business is supposed to be the cash cow that supports these subsidies and the buildout for smartphones and the FiOS Internet and cable businesses. But because of the economic slowdown, businesses have been cutting rather than adding lines. In addition, the soft economy has meant slower growth in more profitable broadband and data services for the landline business.


There's nothing here that a slightly stronger economy wouldn't fix, however, and the company's continued investment in wireless smartphone, FiOS, and landline data services will pay off in the future.


The yield on Monday was a very attractive 6.6%.


For my most recent strategy for Dividend Income investors, see this post


Jim Jubak plans to add shares of Verizon to his personal portfolio three days after this is posted.

2Comments
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

117
117 rated 1
280
280 rated 2
478
478 rated 3
656
656 rated 4
650
650 rated 5
640
640 rated 6
647
647 rated 7
482
482 rated 8
277
277 rated 9
126
126 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
AAPLAPPLE Inc10
ATVIACTIVISION BLIZZARD Inc10
CTSHCOGNIZANT TECHNOLOGY SOLUTIONS10
FOXATWENTY-FIRST CENTURY FOX Inc CLASS A10
ITUBITAU UNIBANCO BANCO MULTIPLO S.A.10
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.