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Can Verizon (VZ) Pull Off A Surprise This Earnings Season?

Published 04/17/2017, 08:57 AM
Updated 07/09/2023, 06:31 AM

U.S. telecom behemoth Verizon Communications Inc. (NYSE:VZ) is slated to report first-quarter 2017 results, before the opening bell on Apr 20.

Last quarter, Verizon posted a negative earnings surprise of 3.37%. The company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, but it delivered an average miss of 0.07%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Spectrum crunch is a major issue in the U.S. telecom industry and Verizon continues to operate in a saturated and competitive wireless market. Expenses related to Verizon’s promotional plans and lucrative discounts to lure more customers might impact the wireless segment’s EBITDA and EBITDA service margins in the to-be-reported quarter.

The company’s wireline division continues to suffer from persistent losses in access lines owing to competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings from cable companies. We believe these factors have led to the company’s below-par price performance. Over the past three months, Verizon lost 7.5% compared with the Zacks categorized U.S. Wireless National industry’s loss of 3.0%.

A legal notice from the city of New York in Mar 2017 in relation to its FiOS (Fiber Optic Service) rollout in the city came as a major setback. This points to the company’s failure to stand up to its commitments.

However, Verizon’s venture into the online TV streaming service is poised to give tough competition to its closest rival AT&T Inc.’s (NYSE:T) online TV streaming service – DirecTV Now and DISH Network Corp.'s (NASDAQ:DISH) Internet Tv serive - Sling TV. Verizon’s 5G wireless network trials in 11 U.S. cities, plans to deploy a fixed wireless version in 2018 and deploy small cells using the 3.5GHz spectrum bode well for its 5G strategy. We expect these announcements to have helped Verizon witness further subscriber addition in the to-be-reported quarter.

Verizon’s decision to launch FiOS Prepaid plan, FiOS Internet service and zero-rate its FiOS Mobile App data should help it gain subscribers in the wireline segment in the to-be reported quarter. Verizon’s unlimited data plans have already heated up the wireless industry. Moreover, Verizon Communications’ strengthened foothold in the Internet of Things (IoT) and fiber space bode well.

Earnings Whispers

Our proven model does not conclusively show that Verizon is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Verizon has an earnings ESP of -1.02%. This is because the Most Accurate estimate stands at 97 cents while the Zacks Consensus Estimate is pegged at 98 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Verizon has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Pick

T-Mobile US Inc. (NYSE:T) from the Zacks categorized broader Computer and Technology sector has the right combination of elements to post an earnings beat when it expectedly reports first-quarter 2017 results on Apr 25. T-Mobile US has an Earnings ESP of +2.94% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 75.66%

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