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Will Lower Aggregate Revenues Hurt Verizon (VZ) Q4 Earnings?

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Verizon Communications Inc. (VZ - Free Report) is scheduled to report fourth-quarter 2020 results on Jan 26, before the opening bell. In the last reported quarter, the New York-based telecom and media giant beat the Zacks Consensus Estimate by 3 cents.

The company is expected to have recorded slightly lower aggregate revenues year over year, despite disruptions caused by the COVID-19 pandemic, driven by a healthy momentum in its wireless business.

Factors at Play

During the quarter under review, Verizon continued to lead the industry with its 5G Ultra Wideband service and expanded the coverage of 5G to 61 cities across the country. The company also offered 5G Ultra Wideband service to business enterprises, and Honeywell and General Motors were among the first business customers to experience this service inside their offices. In addition, it commercially launched indoor 5G cell site for enterprise customers in collaboration with Corning to bring the benefits of millimeter-wave 5G-like high speed and low latency inside facilities where it may be difficult for signals from outside 5G network to penetrate. This is expected to get reflected in the fourth-quarter results.

During the fourth quarter, Verizon  strengthened its collaboration with SAP to develop 5G and compute at the edge solutions. The carrier also inked a multi-year partnership with Walgreens Boots Alliance, a global leader in retail and wholesale pharmacy, to deploy its Network as a Service — a comprehensive, on-demand solution that uses the latest connectivity and security technologies.

Further, the company joined forces with Deloitte to expand mobile edge computing solutions. Continuing its journey to promulgate 5G Edge technology across the United States, Verizon increased the tally of its mobile edge computing platform to 10 cities in the fourth quarter. The deployment, in collaboration with  Amazon Web Services, will help companies develop latency-sensitive applications for the modernization of various industries. These are expected to have driven the company’s earnings.

However, adverse foreign currency translations, evolving market conditions post the deadly virus outbreak and continued investments for 5G deployments are likely to have led to soft margins. Moreover, waiving of wireless voice and data overage fees for all customers and expanded eligibility for low-income Internet programs are likely to have drained the exchequer. This might have affected its revenues to some extent in the to-be-reported quarter.

Plagued by such headwinds, the Zacks Consensus Estimate for total revenues for the company stands at $34,415 million. It generated revenues of $34,775 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $1.16 per share, indicating an improvement from $1.13 reported in the year-earlier quarter.

Key Developments in Q4

During the fourth quarter, Verizon inked an agreement to acquire certain assets of Bluegrass Cellular, a wireless service provider in rural Kentucky. The acquisition will help expand Verizon’s footprint in Kentucky with complementary assets. It will bring enhanced access to Verizon’s wireless network and a suite of mobility products and services to a new customer base.

Earnings Whispers

Our proven model does not predict an earnings beat for Verizon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -0.72%, with the former pegged at $1.15 and the latter at $1.16. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Verizon currently has a Zacks Rank #3.

Stocks to Consider

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

TMobile US, Inc. (TMUS - Free Report) is set to release quarterly numbers on Feb 4. It has an Earnings ESP of +21.54% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc (ST - Free Report) is +2.78% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Feb 2.

The Earnings ESP for Knowles Corporation (KN - Free Report) is +5.56% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Feb 4.

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