Verizon Communications Inc. $41 - New York symbol VZ

VERIZON COMMUNICATIONS INC. $41 (New York symbol VZ; Conservative Growth Portfolio, Utilities sector; Shares outstanding: 2.9 billion; Market cap: $118.9 billion; WSSF Rating: Average) provides local and long distance telephone service to over 45 million customers in 28 states. It also provides communication systems to businesses, and owns 55% of Verizon Wireless, which has 60.6 million customers in 50 states. In 2004, the company began a major upgrade of its traditional phone networks. Called FiOS (Fiber- Optic Service), this project aims to eventually replace the copper wires with modern fiber optic lines all the way to its customers’ homes. These upgrades will greatly improve the capacity of its highspeed networks. That should let Verizon offer more services, including a digital TV package, and help it compete with cable companies. Right now, FiOS reaches 6.8 million homes and businesses in 16 states. Verizon expects FiOS to reach half of the homes it serves within three years. It feels roughly 25% of these customers will subscribe to its TV service. The FiOS project will cost Verizon about $23 billion, or about a fifth of its market cap. The company earned $0.51 a share (total $1.5 billion) from continuing operations in the three months ended March 31, 2007, up 15.9% from $0.44 a share ($1.3 billion) a year earlier. Revenue grew 6.6%, to $22.6 billion from $21.2 billion. Wireless continues to fuel Verizon’s earnings growth. Revenue from the wireless business grew 17% in the latest quarter, mainly due to strong demand for data services such as email and Internet access. The company is also doing a good job of hanging on to its wireless customers. Just 1.1% of its customers cancelled their service in the quarter, down from 1.2% a year earlier. Verizon is now selling non-core assets to raise cash for FiOS, including $1.5 billion worth in the first quarter. Cost cuts and lower interest costs should also free up about $1 billion a year. The company plans to use some of the savings to buy back 3% of its shares. The stock now trades at 18.0 times the $2.37 a share it should earn this year. That’s reasonable in light of Verizon’s improving prospects. The $1.62 dividend yields 3.8%. Verizon is a buy.