Will High Wireless Revenues Buoy Verizon's (VZ) Q3 Earnings?

Verizon Communications Inc. VZ is scheduled to release third-quarter 2018 results before the opening bell on Oct 23. The company is likely to record higher revenues from the Wireless segment, which accounts for the lion’s share of total revenues, on a year-over-year basis.

Whether this will benefit the bottom line of the company remains to be seen.

Top-Line Expansion

Verizon offers one of the most efficient wireless networks in the United States. The telecom behemoth continues to deploy the latest 4G LTE Advanced technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investment. The carrier aggregation integrates discreet bands of spectrum to ensure data flows between the bands more efficiently. It plans to launch next-generation 5G wireless residential broadband services in three to five U.S. markets in 2018. The company has already launched the first commercial 5G network in Sacramento, CA, in October.

During the first application of 5G wireless network, Verizon will be using millimeter-wave spectrum (radio signals) instead of copper or fiber cables to provide customers unmatched wireless speeds for Internet access. It has started conducting field trials for its upcoming 5G wireless network with partners. The company is looking at mobile hotspot and home-based fixed wireless for initial deployment of the next-generation 5G wireless networks in the country in 2018. A full phased 5G wireless network is likely to be offered in 2020.

Verizon expects considerable growth in both its Wireless and Wireline businesses, going forward. The company anticipates healthy improvement in margins on the back of continued strong FiOS fiber-optic network and strategic services in the Wireline business. Also, it is looking forward to capitalize on the countless innovative technology solutions being developed in the Internet of Things and telematics ecosystem across multiple industries. Further, the company’s current focus on online content delivery, mobile video and online advertising should drive growth. Moreover, Verizon continues to achieve increased market traction with focus on the retail post-paid market, higher penetration of smartphones and related sale of Internet devices.

Buoyed by such tailwinds, the Zacks Consensus Estimate for operating revenues in the Wireless segment in the to-be-reported quarter is currently pegged at $22,764 million, which is relatively higher than the year-ago reported figure of $21,580 million. The higher revenue expectations can be attributed to an uptick in demand and an upgrade to state-of-the-art infrastructure.

Total revenues for the company are expected to be $32,542 million compared with $31,717 million in the prior-year quarter.

Other Key Factors

In an effort to expand its customer base, Verizon is spending heavily on promotion and is also offering lucrative discounts. These strategies are likely to impact the company’s EBITDA and EBITDA service margins in the quarter. Revenues from the Wireline segment are likely to be $7,421 million, down from $7,662 million owing to competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by cable companies. In order to make Wireline profitable, Verizon is making significant investments and is streamlining its cost structure. These are likely to weigh on the company’s margins.

Our proven model conclusively shows that Verizon is likely to beat earnings in the third quarter as it possesses the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.04% with the latter pegged at $1.19. 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. Quote

Zacks Rank: Verizon has a Zacks Rank #3. This increases the predictive power of ESP and makes us reasonably confident of an earnings beat.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
   
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:

AT&T Inc. T is slated to release quarterly numbers on Oct 24. It has an Earnings ESP of +0.58% and a Zacks Rank #3.

United States Cellular Corporation USM is likely to release results around Nov 14. The company has an Earnings ESP of +57.45% and sports a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for CenturyLink, Inc. CTL is +6.10% and it carries a Zacks Rank of 3. The company is scheduled to report quarterly numbers on Nov 8.

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