Is Verizon More Likely to Meet Its RBP than AT&T?

The question I am posing is whether Verizon Communications (VZ) can add 5.4 million new wireless subscribers and whether its likelihood of doing so is greater or lower that of than AT&T’s (T) adding 4.7 million new wireless subscribers.

Verizon 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 6% dividend yield. The important question, however, is can the company deliver results sufficient to justify its current stock price of $30?

This is not a case of the stock being all that cheap – it is trading at roughly the same level that it was this time last year. 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 $30/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 is appears attainable. This translates in to 5.4 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, is much more expensive. AT&T’s stock price implies that as many as 4.7 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 may seem more likely that Verizon will deliver the results implied by its stock price.

Take a look at the the following two RBP Snapshots.

How likely is it that each company will meet its Required Business Performance - labled “RBP Values”? To give meaning to this number, observe the “RBP Components” which break out in to the various segments of the business the Required Business Performance. Do these numbers seem reasonable?