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Analyst Blog

Leading wireless service provider, Verizon Communications Inc. (VZ - Analyst Report) recently expanded its 4G Long Term Evolution (LTE) service in Providence, Rhode Island. We believe the expansion would not only help to increase Verizon’s customer base but also enhance the company’s market share in the wireless business.

Verizon has a strong foothold in the wireless business and continues to capture additional market share via robust deployment of the 4G LTE network. This leads to improved operating and capital efficiency. The company is leading the industry in terms of 4G deployment. As of Dec 31, 2013, it covered 500 markets and more than 305 million people.

While Wireless continues to outperform, the Wireline business still continues to be a drag on Verizon’s financials. The company’s Wireline division is struggling with persistent losses in access lines as a result of competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by cable companies. These are weighing on the company’s revenues and margins.

In order to make itself profitable, Verizon is making significant investments and is streamlining its cost structure. It remains unclear if and when a reasonable return can be achieved from such investments. Further, Wireline revenue trends would remain challenging over the next couple of quarters due to the company’s actions to improve profitability. The product rationalization and process simplification initiatives would dilute profits in the short term.

Verizon currently has a Zacks Rank #3 (Hold).

Other Stocks

Better ranked stocks in this sector include Nippon Telegraph and Telephone Corporation (NTT - Snapshot Report), Shenandoah Telecommunications Co. (SHEN - Snapshot Report) and Level 3 Communications, Inc. (LVLT - Snapshot Report). While Nippon and Shenandoah sport a Zacks Rank #1 (Strong Buy), Level 3 carries a Zacks Rank #2 (Buy).

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