Verizon Q1 2016 Earnings Preview

  • Verizon is slated to report Q1 2016 earnings on Apr. 21 2016.
  • Verizon is expected to report modest revenue and earnings after the sale of part of its high-margin wireline business.
  • Verizon's business, however, has been doing well even as rivals continue cutting prices to compete. This bodes well for the stock.

Giant wireless carrier Verizon (NYSE:VZ) is slated to report Q1 2016 earnings on Apr. 21, 2016 after market close. Wall Street consensus calls for revenue of $32.64B, good for 1% Y/Y growth and EPS of $1.07, up 4.9% Y/Y. Meanwhile Verizon did not give Q1 guidance but rather issued full-year 2016 guidance saying it expects earnings to plateau in 2016 due to several factors including sale of its high-margin wireline business in California, Florida, and Texas to Frontier Communications (NASDAQ:FTR) for $8.6B, and the expected capex increase due to the ramping of IoT and video businesses.

Verizon has managed to beat earnings estimates for the last four consecutive quarters. During the fourth quarter of 2015, Verizon beat consensus revenue estimate by $190M and the earnings consensus by $0.01.

Verizon Quarterly Earnings Surprise History

Fiscal
Quarter End
Date
Reported
Earnings
Per Share
Consensus
EPS* Forecast
%
Surprise
Dec2015 01/21/2016 0.89 0.88 1.14
Sep2015 10/20/2015 1.04 1.02 1.96
Jun2015 07/21/2015 1.04 1.01 2.97
Mar2015 04/21/2015 1.02 0.95 7.37

Source: NASDAQ

Huge Wireline Strike Weighing Down on Verizon Stock

Verizon stock has lost about 6% over the past couple of days after nearly 40,000 of its wireline workers, represented by both Communications Workers of America and the International Brotherhood of Electrical Workers, downed their tools on Wednesday. The workers' bone of contention is that Verizon has been pushing for offshoring and outsourcing and that the telecom giant has also failed to meet its network build-out obligations in Philadelphia and New York, as well as upgrading slow-playing FiOS in other cities. These workers have been working without a contract since last August.

Although Verizon's management reiterated its earlier call saying it's well-prepared for the strike, its effect on the company and Verizon stock cannot be underestimated considering that it's the largest work stoppage in the U.S. in many years. Prior to the strike Verizon stock had made strong gains of 11% YTD and the fiasco could easily end up wiping off those gains.

VZ stock chart

Source: Verizon stock price chart by amigobulls.com

Verizon's Core Business Doing Well

That strike aside, Verizon's core business has been doing well. Verizon net additions (wireless, wireline, and FiOS) have remained positive while churn has been declining which is a very good trend. During the fourth quarter, net additions totaled 1.5M bringing the year's total additions to 4.5M. Verizon finished 2015 with 112.1M retail connections (up 3.6% Y/Y) and 106.5M postpaid connections (up 4.4% Y/Y). Retail postpaid churn fell to 0.96% from 1.04% a year prior.

Verizon's FiOS, a service that bundles phone, Internet, and TV, was a mixed bag with increasing Internet penetration (41.8% vs. 41.1% the year before) but declining video penetration (35.3% vs. 35.8% the prior year). FiOS net subscriber additions though remaining positive, fell to their lowest level since the company launched the service. Internet connections were up 99,000 while video connections increased by 20,000. Verizon finished the year with 7M Internet subscribers(up 6.3% Y/Y) and another 5.8M video subscribers( up 3.3% Y/Y).

Verizon has lately been investing heavily in video and bought AOL in 2015 to get a hold of its video assets. Verizon is also looking to acquire Yahoo's (NASDAQ:YHOO) core assets primarily in a bid to acquire the company's video infrastructure and combine it with that of AOL.

Verizon promised to give investors insights into how its new Go90 video service has been performing in 2016. The company has now set its eyes on the market for data and eyeballs. According to Wall Street analyst Craig Moffett:

"Verizon is turning its attention to its vast trove of information about the comings and goings of its 100M wireless users ... Their goal is to reinvent the advertising business."

The fact that Verizon's subscriber base has kept growing despite the company's refusal to engage in price competition with its rivals speaks well of the brand. Verizon has always insisted that it's not willing to cut prices to the bone but is more interested in delivering high-quality services. In contrast, smaller rival Sprint (NYSE:S) has been engaging in a 50%-off competitive promotion for months.

Investor Takeaway

Prior to the huge strike, Verizon stock had been doing well due to the ongoing market weakness. Verizon is viewed by investors as a good defensive play due to its high dividend yield and relatively stable business. The effects of the strike could keep the stock depressed for months. But over a 6-12 month horizon, Verizon stock is likely to make good gains, especially if the markets continue being choppy.

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  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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