Verizon: A Great Buying Opportunity - Barron's

Includes: VOD, VZ
by: SA Eli Hoffmann

Trading for 12 times 2009 earnings of about $2.53, Verizon (NYSE:VZ) offers an attractive refuge in a weak macroeconomic landscape, Barron's Sandra Ward says.

In times that are anything but normal, it pays to invest in a company that delivers reliable, business-as-usual results, keeps its focus on avenues of growth and holds the promise of market-beating returns.

Verizon's accomplishments during an economically dismal 2008 are impressive:

  • invested $17B in capex
  • launched a successful $28B bid for wireless provider Alltel
  • increased dividend by 7%
  • repurchased $1.4B in shares

And its aggressive pursuit of growth paid off: profits jumped 15% in Q4 as demand for its wireless services surged. Verizon also enlisted a record number of new customers for its FiOS fiberoptic TV/internet offering.

Verizon's Alltel acquisition puts Verizon Wireless (a JV with Vodafone (NASDAQ:VOD)) in a unique position to benefit from what CEO Ivan Seidenberg sees as $100B in incremental revenue over the next 4-5 years from the sweet spot of wireless, wireless data, broadband and video. Indeed, data revenue soared 44% in 2008 to more than $10B/year. Verizon may some day buy out Vodafone (VOD). Wireless now counts for 55% of Verizon's revenue, and boasts a low churn rate, healthy margins, and a good reputation.

"You're able to buy good quality at a reasonable price," investment officer Cliff Hoover says. He praises Verizon's stable free-cash flow and 6% dividend yield, and says he sees shares ($30) being worth $41-42 over the next couple years. Money manager Richard Arvedlund also likes the yield, which at twice that of the long-term bond, and a cheaper tax rate of 15%, are compelling.