Verizon Earnings and Value

Verizon Earnings:

Earnings from Verizon were released today.  EPS (adjusted) beat by $0.02.  Debt metrics remain decent and supportive of ratings.  Like the name and the credit.

Stats:

Consolidated
Operating revenues +2.1% YOY to $26,484MM  (Analysts had expected revenue of $26.3 billion);
EBITDA ($7,769MM) +4% YoY ($25,874MM TTM);
CFO $8,340MM, down 7% from Q3 '09 ($25.2 billion in CFO year-to-date);
Net Income $881MM (down 25% YoY) excluding non-controlling interests.  Including NCI $2.9B +1% YoY;
Debt $53,170 - down $4.3B from Q2 '10;
Capex $4,185MM ($11.8 billion YTD);
FCF YTD $9.3B (up $3B from '09)

Debt/EBITDA: 2.05x
Net Debt / EBITDA:
Debt/Capital: 39%
Debt/Capital excl non-controlling interests:  52%

Wireline
Operating revenues -3.6% YOY to $10,286MM.
EBITDA ($2,164) -4.5% YOY
Access lines lost 594k since 6/30 or -8.5% YOY
Strong FiOS internet and Tv adds (+226k and 224k respectively)

Wireless
Operating Revenues up 4.4% YOY to $15,697MM;
EBITDA ($6,510) +9.0% YOY;
Customer adds +1.4MM;
Churn 1.25%, down from 1.36% Q2 '10;
ARPU:  $50.35 up QoQ but down 1% YOY;
Smartphone penetration +3% QoQ;


Value:

VZ  6.125   '12     +65/2y  (Baa1/A - MD)
VZ  5.500   '18     +47/10yr  (A3/A - communications)
VZ  6.250   '37    +149/     (A3/A - communications)
T    8.000   '31    +150/olb    (A2/A)
T    5.200   '14    +70/5YR     (A2/A)
T    5.600   '18    +35/10YR  (A2/A)

Verizon is priced on the screws versus higher rated T but has iPhone upside as a plus and the perpetual VOD JV as an uncertain factor.  Stable credit in a stable credit space.  Would be market weight on the name and potentially tilt to shorter opco names (despite the continued falloff in wirelines).