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Verizon Communications Earnings Preview: Double-Digit EPS Growth Expected


Analysts predict that Verizon will say that per-share earnings rose 10.5% to $0.57, but will the company miss estimates?


Verizon Communications (VZ) is scheduled to report its first-quarter 2012 results tomorrow, April 19, before the markets open.

Verizon ended 2011 with improving top and bottom lines. Its wireless business remained healthy, with strong gross subscriber additions. The company also reduced its net debt to $41.8 billion from $46.1 billion at the end of the previous year. However, Verizon declined to release a financial forecast for the first quarter during its fourth-quarter report.


Analysts on average predict that Verizon will say that per-share earnings rose 10.5% to $0.57. But that estimate has dropped by $.02 in the past 60 days. And note that Verizon missed consensus estimates by $.01 per share in the previous quarter, ending a streak of three consecutive earnings beats. First-quarter revenue is forecast to have risen 4.5% from the same period of last year to total $28.2 billion.

Looking back to the fourth quarter, the company recorded its highest year-over-year quarterly revenue growth in 11 years, driven in part by continued strength in wireless services. Verizon pointed to the rapid expansion of 4G LTE services, strong adoption of Google (GOOG) Android smartphones, and the sale of the Apple (AAPL) iPhone. However, the company reported that it lost $2.02 billion due to a charge for adjusting the value of its pension plans. Adjusted EPS came to $0.52 per share. As mentioned, that was $.01 shy of the consensus forecast.

Looking ahead, analysts so far expect to see sequential and year-over-year growth of both per-share earnings and revenues in the current quarter. At this point, the full-year forecast calls for EPS that are 12.9% higher than in the previous year, as well as revenue up 3.8%.

The Company

Verizon Communications provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide. It operates in two segments: Verizon Wireless, which offers data services and applications via mobile broadband, and Wireline, which offers video services over its fiber-optic network. The company is headquartered in New York City, was founded in 1983, and now has a market cap of $107.0 billion.

Competitors include AT&T (T) and Sprint Nextel (S). The former is expected to report first-quarter results that are marginally higher than a year ago; its numbers will be released on April 24. Analysts expect to see a wider net loss from Sprint when it reports a day later, but with revenues that are up 4.9% year over year.

During the three months that ended in March, Verizon aggressively expanded its 4G LTE network, closed some US call centers, and announced a video deal with Redbox meant to challenge Netflix (NFLX).


Verizon has a long-term earnings per share growth forecast of 10.3% and a dividend yield of 5.3%. The operating margin is higher than the industry average and the forward earnings multiple is lower than the industry average PE ratio. Short interest is 1.5% of the float. But just 16 of 39 analysts polled who follow the stock recommend buying shares. Their mean price target on the shares is less than 5% higher than the current share price.

The share price is more than 3% lower than at the beginning of the year after falling about that much in the past month. It recently fell below the 200-day moving average for the first time this year but has climbed above it again. Over the past six months, the stock has outperformed AT&T but underperformed Sprint Nextel and the broader markets.



Investors interested in exchange traded funds invested in Verizon might want to consider the following trades:

  • Technology Select Sector SPDR (XLK) is about 18% higher year to date.
  • PowerShares Fundamental Pure Large Value (PXLV) is more than 7% higher year to date.
  • ProShares Ultra Telecommunications (LTL) is almost 6% higher year to date.
  • iShares Dow Jones US Telecom (IYZ) is almost 5% higher year to date.


Traders may prefer to consider these alternative positions in the domestic telecom industry:

  • Equinix (EQIX) is up more than 55% year to date.
  • TW Telecom (TWTC) is up about 11% year to date.
  • CenturyLink (CTL) is up more than 5% year to date.

Editor's Note: This content was originally published on by Nelson Hem.

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No positions in stocks mentioned.

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