Why Verizon Stock Popped Today

Verizon Communications (NYSE: VZ) stock gained 2.1% through 1:45 p.m. ET Wednesday after the company reported mixed earnings.

Heading into the telecommunications giant's third-quarter report, analysts forecast Verizon would earn $1.19 per share on $24.3 billion in revenue. Verizon beat the earnings number, returning $1.21 per share, but missed on sales, delivering only $33.8 billion.

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Verizon's Q3 earnings

Formed from the breakup of Ma Bell more than 40 years ago, Verizon's not really a fast-growth company anymore. Q3 sales grew only 1.5% year over year. Still, Verizon delivered impressive earnings growth.

Generally accepted accounting principles (GAAP) profits grew 50% to $1.17 per share. (The $1.21 was a non-GAAP number.) Free cash flow through the year's first nine months grew 9% to stand now at $15.8 billion.

Credit Verizon's broadband business for this growth: Broadband net additions hit 306,000. The wireless phone business shrank slightly, with postpaid contracts falling a net 7,000 customers. Prepaid customers helped make up the difference, growing by 47,000.

Is Verizon stock a buy?

Verizon said total wireless revenue will still end up growing this year, too, rising perhaps 2% or even 2.8% through year-end. And free cash flow for the year could reach anywhere from $19.5 billion to $20.5 billion.

On a $170 billion market capitalization, this values Verizon stock at a price-to-free-cash-flow ratio of about 8.5. That sounds reasonable to me given the stock's generous 7% dividend yield -- and the fact that free cash flow is growing at 9%.

Granted, Verizon does still carry a large debt load -- at $170 billion, it's basically equal to the company's market cap. Despite the debt though, the worst I can say about Verizon is that the stock might be only fairly valued, and not obviously cheap. To me, Verizon stock looks like a buy.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.