Utility Expert Calls on Verizon

02/13/2015 8:00 am EST

Focus: STOCKS

David Dittman

Chief Investment Strategist, Australian Edge, Canadian Edge, & Utility Forecaster

A selloff in this venerable telecom firm has left its shares in the high-quality bargain bin, suggests David Dittman, editor of Utility Forecaster.

As such, our growth stock of the month is Verizon Communications (VZ), whose fourth-quarter results illustrate the competitive pressures in the sector.
 
The stock hit a 52-week low on December 15, 2014, rebounded, but slumped anew after missing analysts' expectations with its most recent numbers.

Fourth-quarter adjusted earnings per share were up 7.6%, but at $0.71, were below a consensus estimate of $0.72.

And wireless margin of 42% was narrower than the 44.1% forecast by Wall Street. Wireless operating revenue grew 11% for the fourth quarter, 8.2% for the year.

This stock now represents a compelling opportunity to lock in a 4.6% yield on a strong company well-positioned for long-term growth.

Verizon's FiOS broadband Internet and video business generated fourth-quarter and full-year revenue growth of 11.6% and 13.6%, respectively.

FiOS now represents 77% of overall wireline revenue, but its growth was not sufficient to overcome erosion of legacy services, as segment sales shrank by 1.6% and 0.5% for the year.

Penetration trends are solid, however, and new services and faster speeds should drive FiOS subscriber growth.

And, in the long run, Verizon's ability to invest in its network coupled with its clear spectrum advantages will help it survive the irrational pricing of some of its competitors.

Verizon—trading at 14.12 times earnings—is a great buy for long-term growth and income up to $52.

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