Is Verizon’s Stock a Buy Now?

With Verizon Communications (NYSE:VZ) receiving a best-in-class reward and shares currently trading below 52-week highs, is the blue-chip member an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

Let’s analyze the stock with the relevant sections of our CHEAT SHEET Investing Framework:

C = Catalyst for the Stock’s Movement

Verizon Wireless, which is a joint venture between the parent company and Vodafone (NASDAQ:VOD), is the nation’s largest 4G LTE network. On Thursday, it received another notable achievement. Among the four major U.S. wireless service providers, Verizon once again scored the highest in satisfaction, according to Consumer Reports’ annual satisfaction survey of 63,000 reader responses. Verizon was followed by Sprint (NYSE:S), Deutsche Telekom’s T-Mobile and AT&T (NYSE:T).

The company grew its lead over Sprint by 6 points in the latest report, achieving high scores in categories like voice and data service quality, employee knowledge and resolution of issues. “Verizon stands out from the pack if you are a heavy-duty data user,” explained Mike Gikas, senior electronics editor at Consumer Reports. “They’re the Cadillac network. They’re pricey in some respects, but in terms of overall quality of service and availability of service, they are the overall leader.”

Although AT&T topped the rankings for the 4G LTE category, Verizon is still expanding its 4G LTE network. The company launched its 4G LTE service in its 400th market in October – Marquette, Michigan – as well as additional markets. With the expanded reach of new areas, almost 4 out of 5 people across the United States now have access to the Verizon Wireless 4G LTE network.

Earnings are looking solid…

E = Earnings Are Increasing Quarter over Quarter

Verizon reported financial results for the third quarter in October. Net income for the company jumped 14.3 percent to $4.29 billion (56 cents per share), compared to $3.54 billion (49 cents per share) a year earlier. Non-GAAP earnings came in at 64 cents per share. Verizon tends to report earnings mostly inline with estimates, but the general trend is slightly higher. Non-GAAP earnings in the third quarter of 2011 and 2010 came in at 56 cents per share. Earnings have been helped by solid revenue numbers. In the most recent quarter, revenue rose 3.9 percent to $29.01 billion. Revenue has climbed higher for the past two quarters.

Verizon also announced that it sold 3.1 million iPhones last quarter, with 651,000 units being the new iPhone 5. It most likely would have sold more iPhone 5 units, but Apple (NASDAQ:AAPL) has been dealing with supply issues. On the conference call, Fran Shammo, Verizon’s CFO, said that he expects Verizon to sell a higher volume of iPhone 5 sales in the current quarter. In a recent survey, Citi analyst Glen Yeung found that iPhone 5 inventories are improving, with Verizon models being widely available at 80 percent of the polled stores.

However, because carriers subsidize the highly popular smartphone, it will likely impact margins to some extent. During the third quarter, Verizon activated 6.5 million smartphones, more than any quarter in its history, with the exception of the fourth quarter 2011, when the iPhone 4S hit shelves.

This is one of the strongest components for Verizon within our CHEAT SHEET investing framework

T = Trends Support the Industry in which the Company Operates

The world is becoming more digital and connected than ever before. According to research firm Strategy Analytics, the number of worldwide smartphone users in the third quarter crossed a record breaking 1 billion.

Analyst Scott Bicheno explains, “By the third quarter of 2011, we estimate there were 708 million smartphones in use worldwide. After a further year of soaring demand, the number of smartphones in use worldwide reached 1,038 billion units.”

During a Facebook (NASDAQ:FB) earnings conference call earlier this year, Mark Zuckerberg predicts, “Over the next 5 years, we expect 4 billion to 5 billion people to have smartphones. That’s more than twice as many people that have computers today.”

Say what you will about Facebook and its troubles after debuting on the Nasdaq, but there is no denying that the world is moving to the mobile industry in droves…

Conclusion

Although Verizon is not the most exciting company in regards to earnings growth, it is a solid blue-chip that could add stability to one’s portfolio. With a price-to-earnings ratio of 41, it is not exactly a screaming buy, but it is cheaper than AT&T and the company’s 44 multiple. In addition to stability, it offers a dividend of 4.6 percent and exposure to the growing mobile market.

The Consumer Reports’ rankings report does not serve as a huge catalyst for Verizon, but it reinforces the company’s overall relationship with customers. In August, J.D. Power and Associates found Verizon to provide a higher quality of service than the majority of its competitors across the country.

Smartphones are considered the bread and butter of Verizon, but the emerging tablet market should not be overlooked either. As more companies such as Apple, Google (NASDAQ:GOOG), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT) release tablet devices, the more connectivity consumers will demand. Consumer Reports notes that the average household already spends over $1,500 on phones and service on yearly basis. Taking into account these components of our CHEAT SHEET investing framework, we find that Verizon is an OUTPERFORM for patient investors looking for a solid dividend name with capital appreciation upside.

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