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Why Is Verizon (VZ) Up 10.9% Since Last Earnings Report?

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It has been about a month since the last earnings report for Verizon Communications (VZ - Free Report) . Shares have added about 10.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Verizon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Verizon Beats Q3 Earnings Estimates, Misses on Revenues

Verizon reported mixed third-quarter 2023 results with the bottom line beating the Zacks Consensus Estimate but the top line missing the same. The telecom giant is witnessing significant 5G adoption and fixed wireless broadband momentum. Strong demand for Fios and fixed wireless products also led to healthy broadband performance with total broadband net additions of 434,000.

Verizon witnessed solid traction in the wireless business with 100,000 total postpaid phone net additions in the quarter along with retail postpaid net additions of 581,000.

Net Income

On a GAAP basis, net income in the quarter was $4,884 million or $1.13 per share compared with $5,024 million or $1.17 per share in the prior-year quarter. The year-over-year decrease despite lower operating expenses was primarily attributable to top-line contraction. Excluding non-recurring items, quarterly adjusted earnings per share were $1.22 compared with $1.32 in the prior-year quarter. The bottom line beat the Zacks Consensus Estimate by 5 cents.

Revenues

Quarterly total operating revenues decreased to $33,336 million from $34,241 million in the prior year owing to lower wireless equipment revenues driven by a challenging macroeconomic environment and lower postpaid phone upgrades. The top line missed the consensus estimate of $33,390 million.

Quarterly Segment Results

Consumer: Total revenues from this segment declined 2.3% year over year to $25,257 million, as higher service revenues were more than offset by lower equipment revenues in the quarter. However, it exceeded our revenue estimate of $24,008 million for the segment led by solid wireless momentum.

Service revenues were up 2.3% to $18,850 million, while wireless equipment revenues slumped 11.8% to $4,902 million. Other revenues totaled $1,505 million, down 19.1% year over year.

The segment recorded 51,000 wireless retail postpaid phone net losses and 207,000 wireless retail prepaid net losses in the quarter. Wireless retail postpaid churn was 1.04%, while retail postpaid phone churn was 0.85%. The company recorded 69,000 Fios Internet net additions as high demand for reliable fiber optic broadband was spurred by higher video consumption. Fixed wireless broadband net additions were 251,000 for the quarter. However, Verizon registered 78,000 Fios Video net losses in the quarter, reflecting the ongoing shift from traditional linear video to over-the-top offerings.

The segment’s operating income improved 2.7% to $7,547 million on lower operating expenses with a margin of 29.9%, up from 28.4% in the year-ago quarter. EBITDA increased 2.2% to $10,819 million with a margin of 42.8% compared with 40.9% in the prior-year quarter due to lower costs of wireless equipment.

Business: The segment revenues were down 4% to $7,527 million due to lower wireline and wireless equipment revenues, partially offset by growth in wireless service revenue. It also was lower than our estimates of $7,694 million largely due to challenging macroeconomic conditions.

The segment had 330,000 wireless retail postpaid net additions in the quarter, including 151,000 postpaid phone net additions. Wireless retail postpaid churn was 1.47%, while retail postpaid phone churn was 1.14%. Fixed wireless broadband net additions were 133,000 for the quarter. Operating income declined to $539 million from $698 million in the year-ago quarter with respective margins of 7.2% and 8.9%. EBITDA was down 6.2% to $1,666 million owing to decline in high margin wireline revenues for a margin of 22.1% compared with 22.7% in the year-earlier quarter.

Other Quarterly Details

Total operating expenses decreased 1.8% year over year to $25,863 million, while operating income was down 5.3% to $7,473 million. Consolidated adjusted EBITDA improved marginally to $12,238 million from $12,218 million for respective margins of 36.7% and 35.7%.

Cash Flow & Liquidity

Verizon generated $28,798 million of net cash from operating activities in the first nine months of 2023 compared with $28,199 million in the year-ago period. The improvement was primarily due to working capital improvements driven by lower inventory levels, fewer phone upgrades and a modest improvement in customer payment patterns. Free cash flow was $6,684 million for the quarter compared with $5,214 million in the prior-year period.

As of Sep 30, 2023, the company had $4,210 million in cash and cash equivalents with $134,441 million of long-term debt.

Guidance Reiterated

Verizon has reiterated its guidance for 2023 and expects wireless service revenue growth in the range of 2.5%-4.5%. Adjusted EBITDA is likely to be $47-$48.5 billion. The company expects adjusted earnings in the range of $4.55 to $4.85 per share. Capital expenditure is estimated at the higher end of its earlier guided range of $18.25 billion and $19.25 billion, while cash flow is likely to be in the range of $36.25 billion and $37.25 billion.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

Currently, Verizon has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Verizon has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Verizon belongs to the Zacks Wireless National industry. Another stock from the same industry, AT&T (T - Free Report) , has gained 6.5% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

AT&T reported revenues of $30.35 billion in the last reported quarter, representing a year-over-year change of +1%. EPS of $0.64 for the same period compares with $0.68 a year ago.

For the current quarter, AT&T is expected to post earnings of $0.57 per share, indicating a change of -6.6% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.4% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for AT&T. Also, the stock has a VGM Score of B.


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