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Idearc Inc. $31 – New York symbol IAR

IDEARC INC. $31 (New York symbol IAR; Income Portfolio, Consumer sector; Shares outstanding: 146.0 million; Market cap: $4.5 billion; WSSF Rating: Average) publishes over 1,200 white pages and yellow pages directories in 35 states.

The company is the former directories division of Verizon Communications Inc. In November 2006, Verizon spun off Idearc to its stockholders as a tax-deferred dividend of one Idearc share for every 20 Verizon shares held. Idearc has a 30-year deal to supply Verizon with directories, which cuts its risk.

Revenue from directories has weakened in the past few years, as more people use the Internet to locate individuals and businesses. Rising paper and transportation costs have also squeezed profits. But Idearc owns, a leading online directory.

SuperPages accounts for less than 10% of its revenue, but Idearc’s strong reputation is helping lure print customers to its online operations. Alliances with Google, MSN, and eBay also enhance SuperPages’ long-term prospects.

Another area of growth for Idearc is Spanish-language directories. It publishes over 50 Spanish-English directories, and operates a Spanish-language version of SuperPages.

The stock has moved up steadily from $25 since the spin-off, and now trades at 10.7 times the $2.90 a share it will probably earn in 2007. The company aims to pay an annual dividend of $1.37 a share (4.4% yield).

Idearc is a buy.

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