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Wall Street JournalVerizon Pre-Q3 Earnings: Is VZ Stock a Portfolio Must-Have?
Verizon Communications Inc. VZ is scheduled to report third-quarter 2024 earnings on Oct. 22. The Zacks Consensus Estimate for sales and earnings is pegged at $33.63 billion and $1.18 per share, respectively. Earnings estimates for VZ have improved from $4.58 per share to $4.59 for 2024 and from $4.68 per share to $4.71 for 2025 over the past 30 days.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
VZ Estimate Trend
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Earnings Surprise History
The communication services provider has had a solid earnings surprise history in the trailing four quarters, exceeding earnings expectations on each occasion. It delivered a four-quarter earnings surprise of 2.19%, on average. In the last reported quarter, the company pulled off an earnings surprise of 0.88%.
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Earnings Whispers
Our proven model predicts an earnings beat for Verizon for the third quarter. 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. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Verizon currently has an ESP of +0.39% with a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Factors Shaping Upcoming Results
Verizon is offering various mix-and-match pricing in wireless and home broadband plans that have historically led to increased adoption of 5G devices and premium unlimited plans. In addition to various bundle plans for varied streaming services, it offers customers greater control and flexibility over their preferred content selections, allowing them to pay only for what they want.
During the to-be-reported quarter, Verizon partnered with Skylo Technologies to enhance customer connectivity by introducing a new satellite-based direct-to-device messaging service. Leveraging Skylo’s cutting-edge satellite technology will likely enable Verizon’s customers with compatible smartphones to use emergency messaging and location sharing outside traditional cellular coverage. This is likely to have translated into healthy customer additions and higher revenues from the Consumer segment.
The Zacks Consensus Estimate for revenues from the Consumer segment is pegged at $25.66 billion, while our model projects revenues of $25.67 billion.
During the reported quarter, Verizon collaborated with SK Shieldus to deliver cybersecurity solutions to South Korea and other Asia-based enterprises operating globally. The collaboration aims to leverage Verizon Business' extensive global reach and SK Shieldus' key expertise to provide comprehensive protection against cyber threats. Verizon also partnered with Vay Technology to bring 5G connectivity to Vay’s fleet of teleoperated electric vehicles. This will enable seamless connectivity for data-intensive, mission-critical workloads, such as providing mobility solutions for teleoperation-capable cars. These are likely to have translated into incremental revenues in the Business segment.
The Zacks Consensus Estimate for revenues from the Business segment is pegged at $7.44 billion, while our model projects revenues of $7.36 billion.
However, adverse foreign currency translations, infrastructure investments and high operating costs for 5G deployments are likely to have led to soft margins in the quarter. Moreover, the promotional offers and lucrative discounts are expected to have weighed on margins. In addition, the company’s wireline division is struggling with persistent losses in access lines owing to competitive pressure from the voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data and video) offerings by cable companies.
Verizon also recorded high capital expenditures for the launch and continued build-out of its 5G Ultra-Wideband network, deployment of significant fiber assets across the country and Intelligent Edge Network architecture upgrades.
Price Performance
Over the past year, VZ has gained 41.3% compared with the industry’s growth of 50.2%. It has also underperformed its peers like AT&T Inc. T and T-Mobile US Inc. TMUS over this period.
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Key Valuation Metric
From a valuation standpoint, Verizon appears attractive relative to the industry and is trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 9.37 forward earnings, lower than 12.46 for the industry and the stock’s mean of 9.46.
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Investment Considerations
By investing steadily in fiber infrastructure and pioneering new technologies, Verizon is well-positioned to bridge the digital divide and enhance the connectivity landscape nationwide. This is likely to translate into solid subscriber growth, higher average revenue per user and increased broadband and fiber penetration.
However, high capital expenditures due to the continued expansion of 5G mmWave in new and existing markets, the densification of the 4G LTE wireless network and the deployment of the fiber infrastructure have eroded margins. An ongoing shift from traditional linear video to over-the-top offerings, along with a competitive and almost saturated U.S. wireless market, is further likely to weigh on the company’s revenues in the future.
End Note
With a Zacks Rank #3, Verizon seems to be treading in the middle of the road, and new investors could be better off if they trade with caution. It appears that the recent initiatives have mostly fallen flat as it plays a catch-up game with its rivals. Consequently, it might not be a prudent investment decision to bet on the stock at the moment.
However, a single quarter’s results are not so important for long-term stakeholders and investors already owning the stock could stay put. With improving earnings estimates, the stock is witnessing a positive investor perception. In addition, an attractive valuation and focus on the deployment of a cloud-native, container-based, virtualized architecture for higher flexibility, scalability and cost efficiency across its network will likely reap long-term benefits. These, in turn, offer some enticing reasons for remaining invested in the stock over a long-term horizon.
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