VERIZON COMMUNICATIONS INC. $50 - New York symbol VZ

VERIZON COMMUNICATIONS INC. $50 (New York symbol VZ, Conservative Growth and Income Portfolios, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $145.0 billion; Price-to-sales ratio: 1.2; Dividend yield: 4.1%; TSINetwork Rating: Average; www.verizon.com) gets 66% of its revenue from its 98.9 million wireless subscribers in the U.S. It also has 22.2 million phone and Internet customers.

Wireless buyout would be expensive

The company sells wireless services through Verizon Wireless, a 55%-owned joint venture with U.K.- based Vodafone Group plc. Verizon may be considering buying the remaining 45% of this business, but a deal seems unlikely, as Vodafone would demand at least $100 billion. That would force Verizon to issue shares to pay for the buyout, which would dilute its current investors’holdings.

Verizon’s revenue rose 10.5%, from $97.4 billion in 2008 to $107.8 billion in 2009. Revenue dipped to $106.6 billion in 2010 but then climbed to $115.8 billion in 2012.

However, Verizon’s earnings are more erratic. They fell from $2.54 a share (or a total of $7.2 billion) in 2008 to $2.15 a share (or $6.1 billion) in 2011 but rebounded to $2.24 a share (or $6.4 billion) in 2012.

In the quarter ended March 31, 2013, revenue rose 4.2%, to $29.4 billion from $28.2 billion a year earlier. Earnings gained 15.3%, to $0.68 a share (or $1.95 billion) from $0.59 a share (or $1.7 billion). It added 720,000 wireless clients, net of deactivations, down 1.9% from a year ago. However, 94% of these new users are under long-term contracts, which are more profitable than pay-as-you-go plans.

For all of 2013, Verizon plans to spend $16.2 billion to expand and upgrade its networks, unchanged from 2012. The company’s annual cash flow is $35 billion, so it can easily afford these outlays. As well, Verizon’s long-term debt of $42.0 billion is a moderate 29% of its market cap. It also holds cash of $6.1 billion, or $2.14 a share.

The stock trades at 18.0 times the $2.78 a share that Verizon will probably earn in 2013. The $2.06 dividend yields 4.1%.

Verizon is a buy.

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