Verizon & iPhone: One Of Many Boosts

| About: Verizon Communications (VZ)

Verizon (NYSE:VZ) is an appealing asset for near term growth and potential capital appreciation alongside an adequate annualized dividend. Verizon has significant advantages over its peers due to its extensive LTE network. Verizon's advancements with 4G make it the most likely to benefit from the iPhone 5 launch and other devices that will utilize LTE as well. Verizon is also the forefront provider to effectively anticipate and best position it to adapt to a developing era in which data becomes the major utility for voice, Internet and device communications.

AT&T (NYSE:T) is Verizon's most direct competitor; Sprint (NYSE:S) is the largest wireless carrier behind Verizon, while CenturyLink (NYSE:CTL) is the other major US telecom with wireline and global enterprise aspirations. Verizon's $129 billion market cap is smaller than AT&T's $220 billion, Verizon has a higher stock price than both wireless carriers but it has the most potential for an uptick and growth from the approaching prominence of 4G devices. Verizon's price is around 45 times earnings while both CenturyLink and AT&T are around 50 times earnings. Verizon's 1.12 price-to-sales ratio is also lower than AT&T's 1.7 and CenturyLink's 1.43.

Verizon's 7.5% return on equity, 12.71% operating margin and 10.1% net margin are all higher than the other major telecoms by at least 350 bps, 80 bps and 650 bps, respectively while all of Sprint's margins are running at a substantial deficit. Sprint's beta score is above one while Verizon has the lowest beta score among the major telecoms below one. Verizon's annualized dividend is around $2.00, CenturyLink's is around $2.90 and AT&T's is around $1.76. Verizon has the highest EPS at around $1.00, Sprint's is -$1.28 and AT&T's is $0.75.

Verizon's recent earnings release details why this telecom has such strong growth projections looking forward. Verizon has a presence in over 150 countries, its LTE network is deployed in over 335 markets in the US; providing coverage to around 230 million people, accounting for 75% of the US population. Verizon expects to complete full LTE deployment by mid-2013; AT&T and Sprint will not complete their 4G networks until at least 2014 and 2015, respectively. Verizon's main focus is on increasing its wireless spectrum portfolio to complete the network and improving its wireline services as well. Growth in FiOs and data revenue will be the main catalysts for positioning Verizon as the premier telecom utility of choice in the near future.

Total second quarter revenue increased 3.7%, YOY to $28.55 billion while total second quarter operating expenses only increased 1.1%, YOY to $22.9 billion. Second quarter operating income increased to $5.65 billion from $4.8 billion, YOY. Verizon's total count of retail customers increased 4.9%, YOY to 94.1 million while its churn rate decreased to 1.11%. In its wireless division, second quarter revenue increased by 7.4%, YOY to $18.57 billion; data revenue increased by 18.5%, YOY to $6.9 billion and accounted for 43.6% of the service revenue. Smartphones now account for 49.7% of Verizon's retail post-paid phone base. Total wireline revenue decreased 3.1%, YOY to $9.93 billion.

Verizon's ARPU increased 3.4% for retail service, 3.7% for retail postpaid and 15.4%, YOY for retail postpaid data. Wireline revenues were positively impacted from high revenues in consumer retail from Verizon's FiOs services. These services account for 65% of second quarter consumer retail, an increase from 57%, YOY. Verizon hopes one day FiOs will serve as the main platform for consumer and business data communication ranging from voice, internet, energy management, machine to machine communications and other platforms as well. Second quarter strategic revenue increased 4.4%, YOY and represents 52 % of Verizon's total global enterprise revenues.

The compilation of recent events shows how Verizon can become the leading telecom in the near to medium term. At the end of August, the FCC approved Verizon's $3.9 billion purchase of wireless spectrum from major cable firms like Comcast (NASDAQ:CMCSA) and Time Warner (TWC). This allows Verizon's LTE network to operate at faster speeds to increase data revenue while it nearly doubled its current available airwaves. Verizon has a significant head start over its peers towards completing a comprehensive 4G network across the US; AT&T's LTE only currently covers 60 plus markets with 4G and Sprint is about a year and a half behind both carriers.

The established LET network sets Verizon up to benefit the most from the iPhone 5, while it already has a number of Android based devices moving towards 4G. Evidence of such progress was proven in the recent DNC in Charlotte where Verizon was able to prepare by investing over $290 million in 2011 to handle the 31% increase in voice calls and over 40 million data connections during the convention. Verizon also recently teamed up with Google (NASDAQ:GOOG) to help Mollen Immunization Clinics go paperless and streamline its operations and communications platform in order to reduce costs. Faster 4G devices means more revenue from tiered data pricing plans that Verizon and AT&T favor for profitability; Sprint is hampering earnings by offering unlimited plans to improve its subscriber base.

Verizon is also considering candidates like Nokia (NYSE:NOK) to capitalize on a Windows based phone for the fourth quarter. Verizon has already committed to carrying the new Blackberry from Research in Motion (RIMM) that is projected to launch in early 2013. Both Nokia and Research in Motion are popular brands that could be saved in the stock market if their new devices are taken on by Verizon. LTE network expansion to increase its wireless subscriber base and revenue while developing strategic wireline services for enterprises gives Verizon the best opportunity for robust growth in the telecom industry.

Verizon has promising enterprise ventures with major firms and is currently vetting opportunities with device manufactures and Microsoft (NASDAQ:MSFT) for improving the level of competition in the wireless sector in order to reduce costs. Verizon has also been able to mitigate costs so far in 2012 beyond its original guidance. Current shareholders should hold Verizon long-term while interested investors should consider this a buy before an uptick precedes the holiday season and new device releases. Verizon's stock price has decreased by around 1.2% since its last earnings release.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.