Welcome to the Stock of the Day. Can you hear me now? Good. Today, we’re going to take a look at Verizon (VZ), who is known for operating America’s largest and most reliable wireless voice and 3G network.
The company just released better-than-expected earnings: is this a signal to buy?
If you live in the United States, chances are you have heard of the massive rivalry between Verizon and AT&T (T) However, many don’t realize that Verizon started as an AT&T spinoff in 1984. Fast forward almost three decades later, and Verizon has emerged as a global force in the broadband and telecommunications industry. The company has diversified into a number of telecommunications services, including land line telephone and internet services, as well as one of the most advanced wireless networks on the planet.
Verizon posted fourth-quarter revenue of $31.07 billion and net income of $5.07 billion, or 66 cents per share, both of which were a modest beat to the consensus analyst expectation. In addition, the company added 1.7 million net retail wireless connections in the fourth quarter, excluding acquisitions and adjustments.
In addition to its earnings beat, news also broke that the company would acquire Intel Media, a start-up business inside Intel (INTC) that was working on an Internet-based television service. The price tag for the deal wasn’t announced, but earlier reports pegged it between $200 million and $500 million, as everyone from Samsung (SSNLF) to AT&T had talked to Intel about purchasing its TV business.
There are currently 23 companies in the domestic telecom industry, and Verizon outperforms most in several fundamental areas. In terms of market cap, Verizon is the second-largest in the industry, second only to AT&T Inc.
In addition, the company is ranked fourth in terms of return on equity and fifth in both long-term growth rate and earnings growth. The company is also better than average in terms of sales growth and its 4.5% dividend yield.
However, given the general state of the telecom industry, that’s not saying a whole lot.
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For much of the past year, this stock fluctuated between a hold and a sell. While the stock does score an A on its Earnings Momentum, and Bs for both Earnings Growth and Earnings Revisions, the company’s Operating Margin Growth and Cash Flow bring this stock down, as well as lackluster Sales Growth, Earnings Surprises and its Return on Equity.
If the company can accelerate its earnings numbers into the next quarter, we could see this stock back on the “Buy” list, but right now I don’t consider Verizon a growth stock.
Bottom Line: As of this posting I consider VZ a C-rated hold.
First off, this is not a reflection of Verizon’s long-term financial prospects. Verizon continues to dominate the domestic wireless communications. At the same time, because we’ve seen buying pressure drop for this stock, I no longer consider VZ a growth play. With a hefty dividend yield and a strong stock buyback program it could be an option for value investors, however.
Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!