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Will Wireline Woes Hurt Verizon (VZ) This Earnings Season?

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Verizon Communications Inc. VZ is scheduled to release fourth-quarter 2019 results before the opening bell on Jan 30. In the fourth quarter, the company is likely to have recorded lower year-over-year revenues from the Wireline business owing to secular pressure from legacy technologies, despite strength in its Wireless business.

Factors at Play

Verizon has been facing decline in legacy wireline services due to competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies, a trend that most likely continued in the fourth quarter. Moreover, the company has been losing Fios Video connections amid pressure from cord-cutting of video bundles as consumers are increasingly cancelling pay TV packages for cheaper streaming options from Netflix, Amazon, Hulu and other services. This trend is likely to be to have continued in the fourth quarter as secular and pricing pressures might have affected its Wireline revenues, undermining the overall quarterly performance.

In the fourth quarter, Verizon became the first U.S. carrier to deploy 5G Ultra Wideband service at Newport News Shipbuilding (“NNS”) in Newport News, VA. This equipped NNS with enhanced network coverage, low-latency data transmission, advanced robotics, AR/VR, real-time analytics and machine learning, thereby reinforcing reliable and secured connectivity with an agile network infrastructure.

Verizon also teamed up with Amazon Web Services to create and deploy low latency applications to mobile devices using 5G and became the first telecom carrier in the world to offer such service during the quarter. The company will leverage AWS Wavelength to deploy consistent and flexible AWS experience across 5G edge compute facilities. Such technology collaborations are likely to have translated into higher revenues for the Business segment that includes the wireless and wireline operations of Wholesale, Public Sector and Other, Small and Medium Business, and Global Enterprise. The Zacks Consensus Estimate for operating revenues for the segment stands at $7,986 million, suggesting growth of 1.3% from the quarter-ago reported figure. The consensus estimate for operating income is pegged at $788 million, indicating a decline from $977 million reported in the previous quarter.

Continued investments to build a single, highly-resilient and scalable fiber network for offering advanced data services to customers across consumer, business and enterprise customer groups are likely to have weighed on margins. The Zacks Consensus Estimate for Wireline EBITDA for the fourth quarter stands at $1,282 million, down 1.2% year over year.

Key Developments in Q4

During the fourth quarter, Verizon collaborated with leading tech behemoths — Qualcomm Incorporated and Ericsson — to initiate a trial run for demonstrating the feasibility of next-gen networking technology Dynamic Spectrum Sharing (DSS). With DSS, Verizon will provide Ultra Wideband network services in areas that utilize 4G spectrum to drive 5G signal, enabling seamless interchange of networking infrastructure between 4G and 5G devices based on traffic demand to minimize spectrum waste. The DSS strategy will revolutionize the introduction of new 5G technologies that allows the deployment of both 4G and 5G in the same band and proactively allocates spectrum resources between them.

Overall Expectations

The Zacks Consensus Estimate for total revenues for the company stands at $34,520 million. It generated revenues of $34,281 million in the prior-year quarter. The consensus estimate for earnings is currently pegged at $1.15 per share, indicating a rise from $1.12 reported in the year-earlier quarter. (Read More: Can Solid Wireless Business Aid Verizon’s Q4 Earnings?)

Earnings Whispers

Our proven model predicts 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 perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.32%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Verizon Communications Inc. Price and EPS Surprise

 

Verizon Communications Inc. Price and EPS Surprise

Verizon Communications Inc. price-eps-surprise | Verizon Communications Inc. Quote

Zacks Rank: Verizon has a Zacks Rank #3.

Other Stocks to Consider

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

Arista Networks, Inc. (ANET - Free Report) is set to release quarterly numbers on Feb 13. It has an Earnings ESP of +2.72% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Viavi Solutions Inc. VIAV is +1.06% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Feb 4.

The Earnings ESP for Altice USA, Inc. ATUS is +11.11% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Feb 12.

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