On Apr 7, 2015, Zacks Investment Research downgraded Verizon Communications Inc. VZ by a notch to a Zacks Rank #3 (Hold).
Over the last 90 days, the company has witnessed downward revisions for the current year with the Zacks Consensus Estimate for earnings moving down from $3.72 to $3.66.
A saturated wireless market, intensifying competition, impact of wireless handset subsidies, heavy capital spending, and regulatory risks may pose near-term threats for Verizon. Moreover, the company is spending heavily on promotion and is providing lucrative discounts as well. As these initiatives are capital intensive, they are likely to impact the company’s wireless segment’s EBITDA and EBITDA service margin going ahead.
Verizon’s LTE, which has become the principal next-generation global standard, also poses a major risk to its wireless segment. Wireless service providers may delay their LTE deployment or adopt different next-generation technologies, including technologies that are incompatible with Verizon. As a result, LTE may not become the principal next-generation global standard or provide Verizon with the global scale, compatibility and other benefits. Thus, the 4G infrastructure may be an obstacle if other service providers shift to different generation technologies.
The company’s wireline business is facing considerable hurdles. In the fourth quarter of 2014, total revenue at the segment was $9,560 million, down 1.6% year over year. Consumer retail revenues were up 4.1% to $3,977 million. Small business revenues totaled $606 million, down 3.7%. Meanwhile, strategic services revenues climbed 1.5% to $2,112 million. Core revenues were down 13.3% to $1,259 million. Global wholesale revenues decreased 5.8% to $1,509 million and Other revenues fell 23% to $97 million.
Stocks to Consider
Better-ranked stocks in this sector include Chunghwa Telecom Co., Ltd. CHT, Level 3 Communications, Inc. LVLT and Vonage Holdings Corporation VG. All these stocks sport a Zacks Rank #1 (Strong Buy).
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