Verizon (VZ) is a leading domestic landline and wireless communications company. It owns 55% of Verizon Wireless, America's leading wireless company. Its wholly owned landline subsidiary also is a leading television cable and internet provider.
In its first quarter of 2012, Verizon reported earnings of $3.9 billion, or $0.59 per share, a nearly 16% advance from the year ago quarter, and a penny more per share from what analysts had expected. Revenue came to $28.2 billion, up 4.6% from the year ago quarter.
Just as impressive as the gross numbers, Verizon is actually "hitting on all cylinders." As one might expect, the wireless interest was and will continue to be the driver of growth for Verizon. The wireless company's junior partner is British Communications giant Vodaphone (VOD). Verizon Wireless' is America's leading provider of 4G Long Term Evolution (LTE) service, the current standard. The service is available to about 2/3 of the population, and is in 230 cities. This summer, the plan is to begin offering shared data plans, similar to family plans for traditional wireless service. At the end of the first quarter of the year, 47% of Verizon Wireless postpaid customers had "smartphones", and as a result, data plan revenues are skyrocketing. In the first quarter of 2012, data revenues were up 21% from the year earlier, and now account for some 43% of all wireless revenue.
Driving all that data capacity is the single biggest challenge to the cell phone industry - radio spectrum rights. Verizon is awaiting government approval for some $4 billion in spectrum it acquired from cable companies and Leap Wireless (LEAP). Verizon sweetened the deal to regulators by committing to auction off several billion dollars in spectrum if the deals go through.
The core landline business is something of a dinosaur, but Verizon has managed to spice it up with its FIOS integrated service. In the first quarter of the year, Verizon added nearly 200,000 FIOS internet and video connections.
Yet the story of Verizon is of course the wireless company, and the sole rough patch is that momentum is slowing for new sign ups. In the first quarter of 2012, Verizon added 734,000 net customers, about half what was added in the fourth quarter of the 2011. That number will be something to watch going forward.
Margins in the wireless company will continue to expand this year as the glut of iPhones sold in 2011, with their hefty subsidies and capital needs, will be in the rear view mirror. Overall, earnings are expected to advance 10 to 12% annually the next five years.
Verizon has raised its dividend each of the past five years, and its yield is now 4.9%. This top quality company makes a fine addition to income oriented, conservative investors.
MetroPCS (PCS) is a leading national carrier in fixed price, pre-paid service. It is in the news at this time because of proposed merger talks between itself and Deutsche Telecom (DTEGY.PK) controlled T- Mobile. It is well known that since the collapse of the AT&T (T) deal late last year, T-Mobile has little appetite to go it alone in the United States. The options for the company are to get bigger, smaller, get sold, or spun off. The current rumor is one more attempt by Deutsche Telecom to have a domestic market presence that it believes T Mobile needs to attain to have long term viability.
Even without any sort of merger, MetroPCS is the country's fifth largest wireless provider with nearly 10 million subscribers. Its 2011 full year revenue and earnings were both up about 20% from the 2010 figure. In the first quarter of 2012, though, earnings nose-dived 63% from the year earlier quarter to $21 million, or six cents per share. The company blamed this on costs of rolling out nationwide 4G service, along with "customer retention" costs.
MetroPCS stock was beaten down over 20% when earnings were announced, and the company made a compelling buy at that price. Now the rumor driven price has placed the stock strictly into speculative hands. If you do not already own the company, avoid it unless the price falls back to earth.
AT&T is the country's second largest wireless carrier. Its considerable non-wireless holdings make it the largest telecommunications company in the country. Going forward, AT&T has two main things in its favor. Its 2011 earnings suffered not just due to the $3 billion in cash and $1 billion in spectrum it was forced to give to Deutsche Telecom when the T Mobil merger failed; it also suffered margin pressure from the enormous subsidies entailed in selling 7.6 million new I Phone handsets in the fourth quarter of 2011. As these customers use their phones utilizing AT&T's expensive data plans, margins will turn in AT&T's favor by late in 2012. That is, unless Apple (AAPL) releases another I Phone during 2012.
With its top notch balance sheet, and 5.3% yield, AT&T is also a perfect choice for conservative, income oriented investors.
America Movil (AMX) is another intriguing option in this sector. This leading western hemisphere telecommunications company is best known in this country as the owner of Tracfone. Beyond that, it has nearly 250 million subscribers across 17 countries, plus another 30 million landlines, and 15 million broadband connections. The company is controlled by Mexico's wealthiest family, the Slim family, which controls 46.5% of the stock. AT&T owns another 24.5% of it.
America Movil struggled mightily in 2011, largely because the cost of rolling out 4G LTE service is overwhelming revenues. A slackening of that capital effort led to first quarter 2012 earnings growing by 43% versus the year earlier quarter.
The attraction of America Movil to me extends far beyond any individual quarter. More than any other individual stock, America Movil represents a proxy for the growing economies of central and South America. As such, it is not a dividend play, as its yield is less than 1%, nor a stock for conservative investors. But it is a great play for those who foresee a burgeoning middle class in our neighbors to our south.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.