Does Verizon's LTE Offer Further Upside Potential?

| About: Verizon Communications (VZ)

Verizon (NYSE:VZ) has reactivated new 4G LTE coverage in Delaware County. The development will expand the network that the company launched in 2011. Verizon customers will be able to utilize their 4G LTE-enabled gadgets to perform operations ten times faster than customers on the company's other networks in the county. I want to show why the 4G LTE network will enhance the company. This factor will help the company to improve its price multiples.

Why will Verizon achieve sales growth with the reactivation and launch of 4G LTE coverage in Delaware County? According to Juniper Research, 4G LTE revenues are set to grow rapidly, reaching more than $340 billion by 2017 globally. Almost 70% of LTE revenues will be generated by North American and Far Eastern & China markets. The force driving the adoption is the embedding of LTE technology in mobile and other consumer devices. The people in Delaware, which has a population of about a million, will subscribe to the 4G LTE network to enjoy this benefit. This will boost Verizon's revenues and improve the price multiples of the company.


Verizon reported that fourth quarter wireless revenues, the division directly impacted by 4G LTE networks, increased by 8.5% compared to 2011 figures. This helped the company's consolidated fourth quarter operating revenues to exceed $30.0 billion for the first time. The figure is a 5.7% improvement compared to the same period in 2011. Verizon's 2012 full-year revenue was $115.8 billion, an increase of 4.5% compared with the figure for 2011. The company reported an increase of 15.7% for FiOS revenues and 5.3% for strategic enterprise services. Cash flow from operating activities was $31.5 billion, an increase of 5.7% compared to 2011.

"Verizon seized growth opportunities in the fourth quarter to cap a year of solid progress across the entire business," said Lowell McAdam, Verizon's CEO. "We delivered a total return of 13.2% to shareholders in 2012, and we enter 2013 ready to accelerate the momentum we've achieved and create significant shareholder value in the years to come."

Verizon reported a third consolidated quarter of double-digit growth year-over-year earnings in its third quarter report. Its wireless service revenues in the quarter were $16.2 billion, up 7.5% year-over-year. The company reported 56 cents in EPS, an increase of 14.3% compared with third-quarter 2011. It also added 1.8 million retail net connections in the quarter, including 1.5 retail postpaid net connections, the highest in four years.

"In the third quarter, Verizon continued to deliver double-digit earnings growth and strong cash generation, and we remain solidly on track to meet our objectives for the year," said McAdam. "With our 4G LTE network advantage, well-received Share Everything Plans, and unmatched product portfolio, Verizon wireless continues to do an outstanding job of balancing gross and net adds in four years."

Verizon's 4G LTE Initiative

In the past two years, Verizon has provided 273 million Americans with 4G LTE network. In April, it expanded the network to Cayuga County, Chautauqua County, Rochester, Syracuse, Utica-Rome, and other places in the New York area. The Delaware County reactivation will enable consumers to surf the web and download materials with speed and ease compared to other networks.

The 4G LTE network is important to Verizon to drive growth throughout the year. Fortunately, the initiative is increasing revenues, and gaining head start over competitors in the sector will prove profitable to Verizon.

When we relate the reactivation and launch of 4G LTE network to Verizon's recent results, it is clear that growth has been achieved in comparison to 2011. So it can be said the Delaware reactivation will help toward the same end and that Verizon is operating at an efficient level.


How is Verizon performing in relation to others? With gross margin of 56.50%, compared to 47.16% for AT&T (NYSE:T) and 37.23% for Sprint Nextel (NYSE:S), and price-to-sales of 1.23, compared to 1.65 for AT&T, and EPS of 0.31, compared to -1.44 for Sprint, Verizon is doing better than the others. AT&T is providing strong competition to Verizon. It is expanding its 4G LTE network to include less densely populated areas, planning for 77 new markets to benefit from its roll-out by summer. However, it has to get its 3G act together before the 4G LTE success. Sprint has been launching its own 4G LTE roll-out, but it has not encompassed as many Americans as the roll out of Verizon.


Looking at the previous performance of Verizon's 4G LTE, the growth prospects in the sector till 2017, and the improving price multiples, we can say Verizon's initiative in Delaware will lead to growth. Conclusively, we can say Verizon is a good buy for now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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