Stevie Wonder may have just called to say “I love you,” investors call on telecom-giant Verizon Communications (NYSE: VZ) looking for profits. And so far in 2010, those profits have amounted to a dropped call at Verizon. VZ stock is down over -12% year-to-date as of this writing, much worse than the slight gains seen in the broader stock market.
Certainly, investors have punished Verizon stock, and that punishment was particularly harsh in April and May. But the latest trend in the shares, both technically and fundamentally, is looking very strong this earnings season. Here are five reasons why investors should dial up Verizon.
Verizon’s Big Earnings Beat. On July 23, Verizon posted a $198 million loss in the second quarter. The company attributed the loss to charges taken from the buyout of 11,000 severed employees. Excluding the one-time buyout charges, Verizon earned 58 cents a share, well above the 56 cents a share anticipated by analysts. Both adjusted EPS and revenue were down in Q2 quarter from the prior year, but the bottom-line beat was seen by the Street as a clear indication that Verizon is back on the right track.
Verizon Wireless Strength. In addition to the better-than-expected overall results, Verizon’s wireless division scored a coup over rival AT&T (NYSE: T). The company added a net 665,000 new wireless contract customers in the quarter, thanks in large part to strong demand for smartphones that run on Google’s (NASDAQ: GOOG) Android OS. AT&T, which currently has exclusive rights to Apple’s (NASDAQ: AAPL
) iPhone, added a net 496,000 contract customers in the second quarter.
The Verizon iPhone factor. Verizon may soon garner even more new wireless contract customers, especially if the reports are true that the company will begin selling the iPhone in January 2011. If those widespread media reports of a deal between Apple and Verizon prove accurate (they have yet to be confirmed by either party), there could be a significant migration of iPhone users away from AT&T and to Verizon. (Read the full story on the Verizon iPhone here)
ChangeWave Satisfaction Ratings. One reason why that migration is likely to take place is due to Verizon’s strong showing in terms of customer satisfaction. According to the latest ChangeWave Alliance Research Network survey of the wireless service provider industry, Verizon continues to hold the top spot by in terms of customer satisfaction – with 50% of Verizon customers saying they are “very satisfied” with their wireless service. Contrast that with only 30% of AT&T wireless users who say they are “very satisfied” with their service. The strong Verizon satisfaction rating, combined with the low AT&T satisfaction rating, should result in a nice bump in wireless contract subscribers for Verizon—and a nice bump in VZ shares in anticipation of the deal.
Buy the Verizon Bounce: We’ve already seen a stellar bounce in VZ shares off their June lows, and after the earnings release last week the stock really began to takeoff. The chart below shows just how fast (and how strong) investors have jumped back into VZ. This stock is definitely on the march, and the smart money is indeed betting on VZ. And hey, it’s never a bad idea to go with the momentum in a big widely held stock like Verizon.
As of this writing, Jim Woods did not own a position in any of the stocks named here.
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