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What to Expect from VZ Stock After Verizon's Q2 Earnings Beat

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Verizon (VZ - Free Report) reported its Q2 earnings results before the market opened on Thursday, August 1. Earnings beat expectations by a small amount, and the stock is up 0.3% since the announcement. Overall, VZ stock has far underperformed the market YTD, losing 1.4%, compared to the industry’s gain of 1.9%. Below, we’ll take a look at how Q2 turned out and what investors should expect from Verizon in the future.

Q2 Overview

Verizon reported Q2 earnings of $1.23 per share, which beat our $1.20 Zacks Consensus Estimate. However, the company slacked on revenues with its $32.07 billion slightly under the $32.4 billion estimate. This marked a 1.6% pullback from Q2 last year.

Margins for the company increased in the second quarter over a year ago by almost a percent to 37.7%. The company reported strong growth in its wireless service revenue, but said it was offset by decreases in wireless equipment and legacy wireline services.

Wireless customer revenue popped 2.5%, as more customers migrated to higher tier plans. VZ added 73,000 net phones during the quarter, compared to just 17,000 for the same period last year.

On the business facing side, Verizon’s total operating revenues for the quarter decreased by 1.1%. This was primarily due to new growth in wireless services and fiber products being offset by pressure from legacy technologies.

Future Outlook

Earnings estimates for Q3 show a roughly similar landscape, with $1.22 per share predicted. This would mark no change from the prior-year quarter. Full-year estimates show a slight increase from last year of just 0.85%. In the earnings report, Verizon’s CFO stated that he expects overall wireless service revenue growth to be in the 2-3% range. There are, however, some accounting headwinds that will likely prevent this from showing up on the balance sheet.

Revenue for this quarter is projected to increase 0.72% to $32.84 billion. Full year revenue is supposed to increase by the same percentage over last year to $131.83 billion. Verizon is likely showing this snail’s pace growth as older technologies and loses in wireline services drag on wireless customer profits.

Verizon is also tying up a lot of capital in its new 5G Ultra-Wideband network. The firm is trying to play catch up after rival AT&T (T - Free Report) got the jump on starting to build out wireless 5G. At the end of fiscal 2018, Verizon said that it would likely spend between $17 and $18 billion in capital expenditures during 2019. It is likely that a large portion of this will go to building out 5G capabilities as it is essentially a race between VZ and AT&T who control roughly 30-35% of the market each.

Bottom Line

Verizon shares have not moved much this year, never reaching a price more than 5% in either direction from VZ’s starting price 12 months ago. The firm’s recent earnings report doesn’t tell us much on the surface, with the numbers only marginally different from a year earlier. Predictions for this quarter are similarly bland.

Investors must remember that this is because Verizon is investing like crazy to build out 5G so that it can challenge powerhouse AT&T, or at least put up enough of a fight to retain its market share.

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