Verizon: This Telecom Will Improve Your Portfolio In 2013

| About: Verizon Communications (VZ)

Current shareholders should hold Verizon (NYSE:VZ) long-term, and interested investors should initiate a position on this growth stock in the telecom industry in the near term. During the third quarter, around 95% of Verizon's postpaid Internet service activations were on 4G LTE, underscoring the success of the Share Everything Plan thus far. Verizon realized 90.4 million postpaid retail connections in the third quarter from 34.8 million accounts. Verizon has favorable financials, an adequate dividend, and has a strong outlook for 2013 based on its Share Everything Plan and leading 4G LTE network.

AT&T (NYSE:T), Sprint (NYSE:S), CenturyLink (NYSE:CTL), and Windstream (NASDAQ:WIN) are the firms most comparable to Verizon. Verizon's price is around 41.6 times earnings, 1.1 times sales, and 3.3 times its book value. Both AT&T and CenturyLink's price is around 45 times earnings, AT&T's price is 1.5 times sales, and Windstream Corp's price is 4.2 times its book value; these are the highest price ratios among the aforementioned firms. Verizon's current ratio is around 0.96, and its debt-to-equity ratio is around 1.4. Its annualized dividend is around $2.06 per share. Verizon's sales have increased around 4.7% over the past five years; CenturyLink's 44.3% sales growth over the past five years is the highest among these firms.

Verizon's $1.07 EPS is the highest among the firms; it's declined 5.8% in 2012 but is expected to increase 15.7% in 2013. Sprint's 44.5% projected EPS growth in 2013 is the highest among the firms. Verizon's 10.7% profit margin is the highest among the firms; its ROE is around 8% and its operating margin is around 13.3%. Verizon's float short is around 1.6% and its short ratio is around 3.5. Verizon's beta is around 0.52, the lowest among these firms. Its average volume is around 12.8 million while its 1.3 relative volume is the highest among these firms. Verizon's stock has increased 16.4% YTD; the stock has declined 1.8% over the past month and has decreased around 0.9% since its last earnings release.

On Verizon's recent earnings report, third quarter operating revenues totaled $29 billion, increasing from $27.9 billion YOY. Third quarter operating expenses totaled $23.52 billion, increasing from $23.26 billion YOY. Third quarter net income totaled $4.29 billion, increasing from $3.54 billion YOY. Net income attributable to Verizon totaled $1.59 billion, increasing from $1.37 billion YOY. Verizon's long-term debt at the end of September 2012 totaled $46.46 billion, decreasing from $50.30 billion at the end of 2011. Net cash provided by operating activities at the end of nine months 2012 totaled $24.75 billion, increasing from $21.51 billion YOY. At the end of nine months 2012, Verizon finished the period with $9.71 billion in cash and cash equivalents, decreasing from $10.32 billion YOY.

Verizon Wireless third quarter revenue totaled $19.02 billion, increasing from $17.75 billion YOY. Third quarter operating income totaled $6.04 billion, increasing from $5.14 billion YOY. The growth in wireless revenue was primarily due to strong demand for Internet data services and smartphones. Smartphones accounted for 53.2% of Verizon's retail postpaid base. Retail postpaid connections per account increased 4% YOY. During the third quarter, Verizon introduced seven 4G LTE smartphones on its network. Verizon Wireless service revenue totaled $16.15 billion, increasing 7.5% YOY. Equipment and other revenue totaled $2.87 billion, increasing 6.6% YOY.

Service revenue increased from higher retail postpaid service revenues on the back of increased connections due to increased penetration of smartphones and increased use of Internet data devices. The launch of the Share Everything plan was a primary catalyst in this increase. Third quarter retail connection churn rate was 1.18%, decreasing by 8 bps YOY. Retail postpaid connections churn rate was 0.91%, decreasing 3 bps YOY. Third quarter retail connections net additions totaled 1.76 million, increasing 82.1% YOY. Retail postpaid connections net additions totaled 1.53 million, increasing 74% YOY. Third quarter 2012, retail postpaid ARPA totaled $145.42, increasing 6.5% YOY. Retail postpaid connections per account for nine months ending September 2012 averaged 2.6, increasing 4% YOY.

Wireline third quarter revenue totaled $9.91 billion, decreasing from $10.14 billion YOY, and third quarter operating income totaled $41 million, decreasing from $53 million YOY. As of mid-October 2012, Verizon's 4G LTE network spans 419 markets covering over 250 million people, totaling over 80% of the US population. Verizon expects its 4G LTE network to span its entire 3G network footprint by the end of 2013. Total broadband connections totaled 8.76 million, increasing 2.3% YOY. FiOS Internet subscribers totaled 5.28 million, increasing 14.4% YOY; FiOS Video subscribers totaled 4.59 million, increasing 15.4% YOY.

Wireline revenues were impacted by higher revenues in Consumer retail on the back of increased FiOS services. FiOS services accounted for 66% of the $3.55 billion in Consumer retail revenue, increasing from 59% YOY. Verizon expects FiOS to eventually serve as a hub for managing multiple home services and to be an integral part of the digital grid in the near future. FiOS internet achieved 37% penetration, increasing from 34.6% YOY. FiOS Video's third quarter penetration was 32.9%, increasing from 30.6% YOY. Strategic revenue totaled $2.01 billion increased 4.4% YOY, accounting for 53% of the $3.77 billion in Global Enterprise revenues.

On its third quarter earnings call, Verizon management detailed some of the reasons to be bullish on this telecom for the long-term. Verizon's $13.4 billion in free cash flow for the first nine months 2012 is 50% higher YOY. Management noted that Verizon Wireless is setting global performance benchmarks that are generating substantial momentum for growth in the fourth quarter and the year 2013.

In the third quarter, 13% of Verizon retail postpaid base joined the Share Everything Plan. Verizon believes additional devices and data usage will be the primary catalysts for increasing service revenue long-term. Current shareholders should hold long-term while interested investors should initiate a position in the near-term as Verizon appears to be the major telecom with the strongest growth potential looking forward.

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.

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