Verizon Communications Inc. $31 – New York symbol VZ

VERIZON COMMUNICATIONS INC. $31 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $89.9 billion; WSSF Rating: Average) provides telephone services to over 140 million customers in 28 states. Through 55%-owned Verizon Wireless, a joint venture with UK-based Vodafone, it also has 59 million wireless subscribers in 50 states. Verizon’s wireless operations supply about half of its revenues, but 75% of its profits. These figures should rise now that Verizon Wireless has agreed to buy privately held Alltel Corp., which provides wireless services to 13 million customers in mainly rural areas of 34 states. The purchase will make Verizon Wireless the largest wireless provider in the United States, with over 80 million customers. Verizon Wireless will pay $5.9 billion in cash and assume Alltel’s debt of $22.2 billion, for a total price of $28.1 billion. Verizon’s share works out to $15.5 billion. Verizon feels the merger will generate annual cost savings of $1 billion in the second year after closing. In the three months ended June 30, 2008, Verizon’s earnings rose 11.8%, to $1.9 billion from $1.7 billion a year earlier. Per-share earnings rose 15.5%, to $0.67 from $0.58, on fewer shares outstanding. These figures exclude unusual items. Revenue rose 3.7%, to $24.1 billion from $23.0 billion, mainly due to strong demand for wireless and high-speed Internet services. Verizon should earn $2.61 a share in 2008, and the stock trades at 11.9 times that figure. It’s also cheap at 4.0 times its projected cash flow per share of $7.70. These estimates exclude the Alltel purchase. Verizon just raised its dividend by 7.0%. The new annual rate of $1.84 yields 5.9%. Verizon is a buy.