“We think investors should take a 2nd look at Verizon, as 2007 could be a tipping point for the company to begin reporting year-over-year earnings growth,” he wrote in a research note this morning. “Management has previously commented that it expects 2007 FiOS [the company’s fiber optic rollout] dilution to be flat compared to 2006, and we believe this has weighed heavily on investors’ minds. However, because each quarter in 2006 has seen an increase in FiOS dilution, mathematically there needs to be quarterly, sequential declines in FiOS dilution in 2007. All else equal, this will result in quarterly earnings accretion.”
Meanwhile, he notes that while the company’s spinoff of its directories unit into Idearc is P/E dilutive, it “enhances the top and bottom line growth rates as the business was contracting.”
In pre-market trading, Verizon shares are up 26 cents to $34.93.