Verizon: Solid Performance Unrewarded by Chaotic Market

Verizon Communications (VZ) looks like a great buy right now. The company has weathered the crisis very well, is adding new subscribers faster than its peers and sports a nearly 6% dividend yield. More importantly, however, the company should have little trouble delivering results sufficient to justify its current stock price of $31.

This is not a case of the stock being all that cheap – it is trading only 15% lower than it was this time last year (compared with the market’s 30%+ drop). Rather, it is a case of solid performance that has gone unrewarded in a chaotic market. While justifiable economic concerns loom, it remains clear that Verizon is well positioned in the wireless market and results in this segment should allow the company to come in above the market’s implicit expectations.

For instance, the current price of $51/share implies that Verizon will see total revenue growth of 2.6% in the upcoming twelve months. In light of the fact that revenue growth for the twelve months ended March 2009 was 4% this appears attainable. This translates into 4.9 million new wireless subscribers after making reasonable assumptions for the growth in the other segments. To put this subscriber growth in perspective, over the last twelve months the company has added 7.4 million subscribers.

Of course, this is a competitive industry. Fortunately, Verizon is one of two competitors acquiring new market share. The other, AT&T (T), is much more expensive. AT&T’s stock price implies that as many as 6.1 million new subscribers will be added in the next twelve months if other segments of its business grow at reasonable rates. In consideration of the fact that Verizon is already larger in terms of total subscribers, it seems far more likely that Verizon will deliver the results implied by its stock price.

The two companies’ RBP Snapshots corroborate this thesis. Verizon boasts an RBP Probability of over 96% (See VZ’s RBP Snapshot), indicating that there is a very high probability that the company will be able to produce those 4.9 million new subscribers. AT&T’s RBP Probability is noticeably lower, coming in at 64%. (See T’s RBP Snapshot)