No Surprises From Verizon

For Thomas's preview heading into the Verizon conference call, please click here.

Verizon (VZ - commentary - Cramer's Take) reported a better-than-consensus quarter, but much of this was priced in on the heels of strong numbers from AT&T (T - commentary - Cramer's Take) and Research In Motion (RIMM - commentary - Cramer's Take).

For the quarter just ended, the company posted EPS of 63 cents on total revenue of $26.59 billion. Wireless subs were up 29%, to 86.6 million, with total churn at 1.47%. Total wireless revenue came in at $15.1 billion. On the wireline side, revenue came in at $11.5 billion, with access lines continuing to drop off (a loss of 964,000 during the quarter) while FiOS connections are growing. The company added nearly 300,000 FiOS high-speed Internet access customers.

The Alltel acquisition is now fully complete. Operating margins remain consistent at 18.6%. Field trials in long-term evolution (LTE) are under way and the company expects commercial-based services in 2010. Verizon's customers sent 1.4 billion text messages each day (which is not really material to the earnings, but I thought it was interesting.) Total data revenue in wireless was $3.6 billion of the $15 total. The company is not really talking about Apple's (AAPL - commentary - Cramer's Take) iPhone availability despite some chatter in the news today that iPhone could come to Verizon before the LTE upgrade.

Overall, it was a pretty straightforward quarter with little real variance from what the Street was expecting. Revenue growth rates for the bigger telecom companies have remained slow but steady. The real issue remains the ability to manage cost as the rollout of FiOS and LTE continues over the next few years.

So while the company looks fairly valued at about 12 times forward estimates and has decent cash flow metrics, it's not really an area that I find incredibly exciting. I would prefer to play the handset companies themselves or the companies with exposure to Verizon's capex.

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Know What You Own: Verizon operates in the domestic telecom services industry, and some of the other stocks in its field include BCE (BCE - commentary - Cramer's Take), Qwest (Q - commentary - Cramer's Take) and Windstream (WIN - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Thomas was long Research In Motion, although holdings can change at any time without notice.

Ben Thomas, CFA, is the founder and managing principal of Waycross Partners. Waycross Partners is a long/short hedge fund that focuses on the technology and health care sectors. Before Waycross, Ben was a portfolio manager and senior equity analyst at INVESCO, where he was part of a team that managed over $20 billion in assets. While at INVESCO, he was the lead manager for the INVESCO Midcap Growth fund as well as the firm's senior equity analyst covering technology stocks.

Prior to INVESCO, Ben worked for Banc One Securities and Prudential Securities. He graduated from the University of Kentucky with a bachelor's degree in finance and went on to earn his MBA from Indiana University. Ben is a member of the CFA Institute and serves on the board of directors for the CFA Society of Louisville.