Verizon seemed set to ring up a solid double-digit earnings advance in 2008.
During the third quarter, the company reported a 5% share-net improvement on a 4% year-over-year sales advance. Growth drivers during the interim included Verizon Wireless, which reported 1.5 million net organic customer additions during the quarter. What’s more, the division’s total revenues were up 12.5%, thanks to an uptick in ARPU (average revenue per
user). Separately, the Wireline division generated solid financial results, thanks to accelerated growth of FiOS sales and continued increased sales of enterprise strategic services. Notably, VZ added 233,000 FiOS TV subscribers and 225,000 FiOS Internet subscribers during the uarter. As such, penetration for FiOS TV is now at 20%, while FiOS Internet penetration hit the 24% mark. The ongoing rollout of FiOS services across New York City augur wells for FiOS results going forward.
But there may be a bit of trouble on the horizon. Earlier this year, Verizon inked
an agreement to acquire Alltel for an aggregate value of about $28.1 billion. Once the deal is completed, the new entity will be the largest wireless provider in the United States. However, as part of agreement, Verizon must refinance approximately $22 billion in Alltel debt to complete
the transaction. Given the overall state of the capital markets, the cost of doing so has increased considerably since the deal was announced during the second quarter. As a result, management has warned that it will be difficult to achieve its prior guidance of $0.10 a share in Alltel-related accretion in 2009. Separately, we would not be surprised to see Verizon’s Business segment come under a bit of pressure going forward, as the overall business community feels the effects of the downturn in the economy and a bleak employment picture. As a result, we have pared our earnings estimates for this year and next by $0.08 and $0.20, to $2.57 and $2.70, respectively.
Based on recent price and earnings momentum, this stock is now ranked to outperform the year-ahead market averages. Yet, at the current quotation, the issue displays below average 3- to 5- year price-appreciation potential.
Kenneth A. Nugent December 26, 2008
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