Verizon Continues to Hold

We maintain our Hold rating on Verizon Communications, Inc. (VZ - Analyst Report), the second-largest provider of telecom services in North America. The company recently received the necessary regulatory approvals for its acquisition of Alltel, which will create the largest wireless carrier in the U.S., surpassing AT&T Inc.  (T - Analyst Report).

With its vast network coverage, Verizon continues to demonstrate recurring opportunities with solid subscriber growth and the lowest churn rates in the industry. Efforts to broaden its market penetration of video services through fiber-to-the-premises (FiOS) networking and the company's 3G wireless coverage expansion have been considered successful initatives.

However, access line losses continue as the company faces intense competition from cable companies and VoIP providers. While VZ's substantial investment in the FiOS infrastructure is expected to improve its "triple-play" bundle offering, it is unclear if and when a reasonable return can be achieved from such an investment.

The stock remains attractive for income-oriented investors based on a healthy dividend yield, but large capital expenditures and acquisitions have increased net debt levels, warranting a higher than usual risk, which may limit higher valuation levels.

Anindya Barman contributed to this report.

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