Verizon (VZ) has seemed to weather the European financial crisis well as the stock sits at $42, just off its 52-week high. Amazingly enough, the pure telecommunications stocks were not "thrown out with the bath water" like so many other large technology companies. Verizon has proved to be one of the few stalwarts not crushed by financial problems abroad. I think it is understandable given the fact that Verizon continues to grow revenues in double-digits unlike other telecommunications giants like Vodafone Group (VOD), AT&T (T), Sprint Nextel (S), and British Telecom (BT).
Why Verizon is a buy
I know people have looked at the recent carnage in the market to find bargains and buy a few positions here and there. I found it interesting, while looking for those few safe havens, that Verizon has been stable for more than a year. I think there are quite a few reasons for an investor to buy Verizon: its earnings, a very good dividend, innovation in integrated services and acquisitions that enhance a new business line.
Verizon had impressive earnings in the first quarter of 2012 at $0.59 per share or 8 cents higher than analysts had expected. I like this number because it represented a double-digit increase of almost 16% over the first quarter of 2011. I also liked that Verizon was able to bolster operating revenues by almost 5% over the same quarter in 2011. Combine both of these numbers and the growth seems stable going forward. Verizon's free cash flow numbers were expanding too in the first quarter of 2012 by some $1.7 billion. Couple this increase with lower capital expenditures expected in the future, free cash flow should continue to climb.
I think Verizon also has an intriguing dividend history of stability which gives the value and dividend investor another reason to purchase the stock at around $40 per share. Since 2006, Verizon's dividend has increased 6% year-over-year and analysts predict that Verizon will come close to breaking $2 in dividend earnings for fiscal 2012. Verizon is currently offering a 5% yield at a price of $40 per share and if you are playing the dividend game to earn some money, this stock is hard to beat.
I believe pure telecommunications companies are experiencing a sweet spot of business right now with the consumer. In the near future, there does not appear to be any type of price war between AT&T and Verizon or their European counterparts, Vodafone and British Telecom. Yes, Sprint has offered a true unlimited data plan but Verizon is counting on the fact that its 4G network is superb when completed. The future for wireless is constructing an available 3G network nationwide, which is scheduled to be completed in July 2013 and the expansion of 4G networks to 400 markets by end of 2012. I like that Verizon has far out paced its rivals AT&T and Sprint in the build out for future capacity and I also like that Verizon has the strongest client retention in the mobile arena. The fact that data revenue grew by 16% per subscriber, a larger network can only lead to greater data revenue as more capacity is constructed.
Verizon also created a joint venture with Coinstar (CSTR), who owns Redbox, in February 2012 after having initial ideas of acquiring Netflix (NFLX) in December 2011. The Coinstar and Verizon partnership will directly compete with Netflix for streaming video services over cable television and through Verizon's wireless network. Therefore, going forward Verizon must continue to make key partnerships and purchases as well as continuing the build out of its 4G network in order to keep a competitive portfolio of services for its subscribers.
Verizon has long wanted to have a more meaningful impact on machine-to-machine services in the automotive sector. On June 1, 2012 announced the purchase of Hughes Telematics, Inc. for $617 million or roughly $12 per share. Hughes Telematics, based in Atlanta, is seen as one of the leader's in the machine-to-machine (M2M) market that Verizon believes will grow dramatically over the next 5 years. Verizon believes the acquisition of Hughes Telematics will propel Verizon forward in its quest to capitalize on a vertical segment of business which will support automotive and fleet telematics services. Verizon also believes this move will bolster its position in mobile Health and home automation as well.
Overall, the purchase of Hughes Telematics increases Verizon's flexibility with a service-delivery platform that allows multiple integrations going forward. The move by Verizon is viewed as an important piece of technology that can add to revenue and growth in tandem with Verizon's existing global IP network, cloud, mobility and security. The above acquisition and partnerships should lead to many positives for Verizon in future subscriber revenues with regard to added on features. If a person can bundle more services within the same service provider it is a win for the consumer in price and usually a win for the company in retention rates.
There is downside with Verizon trading near its 52-week highs but Verizon has traded within a $9 price range for over 18 months. The stock looks solid within the range of $32-$41 and as more turmoil in Europe erodes away on global corporations, I believe Verizon will be buffered by the U.S. consumer. Analysts have a mixed picture on Verizon with only 45% committing to a strong buy position but almost all believe the stock should be held if an investor owns a position.
I feel that the price will go up with investors seeking guaranteed dividend growth and shelter from the current mayhem in the markets. In my eyes, Verizon has good growth, an attractive dividend, innovative network capabilities, and has strategically enhanced subscriber revenues by adding innovative services to its portfolio. I suggest buying Verizon, and you can watch as new 52-week highs are soon achieved.