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Verizon Communications: Best Of The Bunch And The Market Knows It

Roger S. Conrad profile picture
Roger S. Conrad

In the 1990s, few imagined that Bell Atlantic Corp would lead the telecommunications industry 15 years later. But that's exactly the position in which its successor, Verizon Communications (NYSE:VZ), finds itself. Second-quarter results confirmed the company's dominance.

The telecom giant's second-quarter earnings (excluding one-time gains) came in at $0.73 per share, up 14.1 percent from last year's tally. Wireless revenue climbed 8.3 percent from year-ago levels, while cash flow margins from services approached 50 percent - an impressive feat considering the hefty subsidies that the company pays for Apple's (AAPL) iPhones.

Verizon Communications' wireless business limited customer churn to a mere 0.93 percent in the second quarter. Subscriber growth also accelerated over this three-month period, while investments to extend the availability of its 4G LTE (long-term evolution) network to 30.1 million people in the U.S. set the stage for further gains.

The days when customer attrition in Verizon Communications' wireline business weighed heavily on quarterly results have passed. Second-quarter revenue in this segment increased by 4.7 percent overall and 9.4 percent per customer, with broadband sales outpacing losses in the traditional voice business.

Revenue from Verizon Communications' FiOS network surged by 14.7 percent from year-ago levels, while sales of cloud, data, security, networking and other strategic services to its global business customers climbed by 4.8 percent. These services now account for 57 percent of the division's sales.

The company's second-quarter results are the latest evidence that the firm has transitioned from a traditional phone company to a fully integrated provider of wireline and wireless broadband technology.

We expect Verizon Communications' dominance to continue despite increasing competition, thanks in part to $7.6 billion worth of network investments in the first half of 2013.

There's always the chance that federal regulators could move to loosen Verizon Communications' grip on the U.S. market. These concerns, for example, prompted

This article was written by

Roger S. Conrad profile picture
Roger Conrad has been providing value to individual and professional investors, many of whom have profited from his decades of experience uncovering the best dividend-paying stocks for accumulating sustainable wealth. Roger Conrad founded and ran the Utility Forecaster and Canadian Edge newsletters before leaving to form his own publishing company. During his almost 30-year tenure at Utility Forecaster, Hulbert Financial Digest routinely ranked the publication as one of the best investment newsletters. Roger Conrad is a regular contributor to Forbes.com, is an independent trustee of Miller/Howard High Income Equity Fund and the author of Power Hungry: Strategic Investing in Telecommunications, Utilities and Other Essential Services. Although he spends a good deal of time in front of a Bloomberg terminal or reading 10-K and 10-Q reports, he’s also an avid outdoorsman and baseball fan.

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Comments (2)

VZ apparently is facing litigation in federal court by several unions representing retired employee groups. They claim misuse of pension money by paying corporate operating expenses among other things.I'm just surprised this sort of practice would have caught media attention.
Robert Syputa profile picture
I agree with your assessment of Verizon's strengths and performance. VZW has shown itself to be both pragmatic in its decisions, including pushing ahead of the industry into LTE development and deployments in 700MHz spectrum while not making life-threatening blunders in acquisitions similar to Sprint's acq. of Nextel Netwrecks.

However a few points: The wireless industry is far from being unloved: We MBA's and the accountants or managers who studied the mundane topics of corporate finance of the ancient era before the year 2000 might not help but reflect on what that course work once taught about financial ratios and such other nonsense. The debt to equity, P/E and many other ratios of that ancient bygone era are now laughable but should remind us that 'love' can show up in mob acceptance of new norms.

As you noted, VZ has a respectably tame P/E and substantially better sales and earnings trends than most all competitors it is compared. Sprint looks like, well , a real stinker with the promise of coming into something of an alignment with the parent company Softbank to result in higher sales, lowering of debt and debt service, and improved margins. I doubt that will come as easily as it had for SB's acquisition of Vodafone Japan: the competitive environment has marched on with time internationally while Verizon and AT&T pose a different set of competitors not so easily caught off-guard as part of an industry liberalization that has taken place in Japan.

However, Verizon might also be viewed as having reached a regulatory grace plateau and early exploitation of LTE that is set to open up to increased competition going forward.
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