Verizon (VZ) operates in the competitive and tumultuous telecommunications industry and, as such, has to continually adapt to stay ahead of the competition and maintain both high customer satisfaction with fast network speeds and new devices and high shareholder satisfaction with significant dividends and rising share prices.
Verizon is rapidly expanding its network! The firm added 46 cities to the LTE network and further expanded coverage in 22 of its existing markets. The LTE can boast mobile upload speeds of 2-5 mbps and download speeds of 5-12 mbps. This will bring Verizon's high-speed coverage to a total of 304 markets - reaching over two-thirds of the entire U.S. population! The company's ambitious plans include expanding 4G networks to a total of 400 distinct markets before the end of 2012.
Coverage is one of the biggest points of interest for consumers right now. Verizon far outranks AT&T (T), Sprint Nextel (S), and T-Mobile in its LTE network coverage. AT&T, the second largest U.S. based mobile carrier, only has 41 markets covering 74 million potential users. However, it too has goals of expansion and intends to double these numbers before the beginning of 2013. Sprint, third in size, does plan to launch an LTE network in half a dozen markets but has not yet completed its deployment. Finally, T-Mobile, lagging behind the pack in the LTE network offering, has plans to upgrade in 2013.
Meanwhile, Verizon is upgrading, expanding, and diversifying its portfolio of devices to include more tablets, mobile hotspots, and smartphones. New products will include the Motorola (MSI) Droid 4, the Motorola Droid RAZR MAXX, the Droid Incredible 4G LTE, and the Samsung Galaxy S III. Verizon's partnership with Samsung is an advantageous one, considering Samsung's products are some of the most popular ones for consumers and it is a tech industry giant (combined with Apple, they make up 99% of the cell phone market).
Verizon even went a step further into people's homes in offering an in-home wireless service called "HomeFusion Broadband," which is based on its LTE technology. This will further enhance Verizon's consumer base, as it is now able to cater to homes in rural or remote locations, which currently lack access to cable or DSL. These expansions will certainly increase Verizon's sales, revenues, and profits in the near - and perhaps long-term - future.
Verizon's earnings per share (EPS) of 0.93 beats many other companies in its sector, including AT&T with an EPS of 0.69 and Sprint with an EPS of -1.11. Verizon's operating metrics including return on average assets (ROA) and return on average equity (ROE) are also above those of the competitors. Its dividend yield of 4.62 does not place it among the highest in the industry but does outperform most other stocks and certainly beats the current treasury bill rates that have reached record lows. Moreover, Verizon's beta value of 0.51 is the lowest in its sector, indicating that this stock yields high returns relative to its impressively low risk. These factors certainly make it an appealing investment to those looking for stable returns without taking on too much risk in its portfolio.
Two of Verizon's big telecom competitors, Sprint and MetroPCS (PCS), do not provide dividends, so the bigger industry giants such as Verizon, Apple, and AT&T are often seen as more lucrative. And while AT&T has a bigger market cap ($207.43 billion to Verizon's $126.06 billion), Verizon seems to be more appealing to consumers despite the numbers.
While analysts seem to have delivered mixed reviews on Verizon, most are considerably favorable. Analysts at Pivotal Research released a note to investors on Monday indicating a "hold" rating on Verizon stock. Though seemingly only a tepid endorsement, this is clearly not bad news for the company's current stockholders. It is doing the "right thing" as it holds onto its shares and strong await future returns. Two days later, analysts with Nomura announced their "neutral" rating while Canaccord Genuity reiterated its "positive" rating for Verizon's stock.
Even better news came from Oppenheimer. Based on a positive meeting with the firm's management, equities analysts at Oppenheimer raised the price target of Verizon's shares to $48 in a note issued on Friday. Oppenheimer is not surprisingly maintaining its "outperform" rating on Verizon stock. The same analysts offered hopeful news for AT&T investors, as it raised the target price of Verizon's competitor to $40. With both stocks receiving "outperform" rankings from this research firm, this may be a strong indicator of the telecommunications industry in general.
While diversification is good, if an investor only wanted to buy stock in one telecommunications company, reports suggest Verizon would be the stronger choice compared to AT&T. The latter's dividend yield of 5% is slightly higher than that of Verizon, but investors' focus should be on the future of each company and its share price. Though AT&T has admirably (if only moderately) increased its dividends for the past three decades, Verizon may be better positioned to outpace its rival with an abnormally high spike in 2013 or 2014. One explanation for the variance between these competitors is that Verizon's free cash flows are expected to grow by 29% next year and 14% the year after that. During the same time period, AT&T's free cash flows are expected to decline by 2.4% and then another 1.1% in 2014. Verizon's sales are expected to increase by 3.8% this year, compared to the 1.3% of AT&T. AT&T will likely see its earnings per share rise by 8.6% in 2012 and 7.1% in 2013, but that pales in comparison to expectations for Verizon (16% and 12%, respectively).
As mentioned, Verizon has a huge lead on its competitors, including AT&T in developing its 4G LTE high-speed broadband network for mobile devices. Meanwhile, AT&T has continued investing in its 3G network and maintains a higher exposure to the less profitable traditional-phone consumers.
Overall, the telecom sector has outperformed each of the other nine sectors found in the S&P 500 index over the past three months. Telecom stocks have traditionally served as a safe investment instrument to those wanting to own equities without exposing itself to the risks of global economic fluctuations. It is therefore no surprise that many telecom stocks are trading near their 52-week highs, and appear ready to set a new one in the near future.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.