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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


September 25th 2009 Verizon
NYSE Symbol:VZ
Industry: Telecommunications
Price as of Sept 25: $29.94

The more things change the more they stay the same. Back in the 1980s the government required AT&T to breaking up into seven regional "baby bell" telephone companies which proceeded to split up into even more companies over the years. However, in the recent decade the telephone companies have consolidated once again into two giant phone companies, Verizon and SBC which changed it's name to, you guessed it, AT&T. This week we'll feature the smaller of the two bell companies, and local favorite, Verizon. Thanks to new technology, the phone business has changed dramatically. More and more customers are dumping their land line home phones going exclusively to cell phones. To combat the lost business in land lines, Verizon has upgraded their phone lines to fiber optic cables to provide television and Internet service to their customers. Verizon's television and Internet Fios business has performed great receiving high marks from customers and Consumer Reports for reliability and great quality. Verizon and AT&T continue to churn out billions in free cash flow every quarter providing dividend yields of 6.4% and 6.2% respectively. And both go ex-dividend in the next two weeks.
AT&T and Verizon both reported solid earnings back in July. AT&T earnings came in at 54 cents per share or $3.18 billion or 3 cents better than the First Call consensus. Revenues fell 0.4% to $30.73 billion. Total wireless subscribers, which include prepaid and reseller results in addition to postpaid, increased by 1.4 million in the second quarter to reach 79.6 million, up 6.7 million over the past year. AT&T have received a nice lift in business from Apple's iphone which is one of the main differences between AT&T and Verizon. So far AT&T is the sole provider of the Apple iphone while Verizon focuses on Research in Motion's blackberry products. Verizon's earnings back in July were in line coming in at 63 cents a share or $1.78 billion. Revenues rose 11.3% year over year to $26.86 billion. Verizon reported 1.1 million net customer additions, excluding acquisitions and adjustments. Verizon reported 300,000 net new FiOS TV customers and a record 303,000
net new FiOS Internet customers, for a total of 2.5 million FiOS TV customers and 3.1 million FiOS Internet customers.
Not surprisingly, these two similar companies trade for similar valuations. AT&T trades for 1.2 times sales, 1.6 times book, and a PE of 12 times next years earnings. Verizon trades for 0.8 times sales, 2 times book, and a PE of 11.5 times earnings. Besides the low valuations, both companies have two of the best dividend yeilds of any S&P 500 company. Both stocks will go ex-dividend in the next two weeks with AT&T yeilding 6.2% and Verizon, having just raised their dividend by a penny, now yields 6.4%. Not bad for two blue chip, Dow component companies.