Verizon Communications Inc. VZ is set announce its first-quarter 2015 financial numbers before the opening bell on Apr 21, 2015.
Last quarter, the company’s earnings came in line with the Zacks Consensus Estimate. Moreover, the company’s earnings beat the Zacks Consensus Estimate in two of the last four quarters, with an average negative surprise of 1.4%. Let’s see how things are shaping up for this announcement.
Factors at Play
Verizon Communications’ consistent market share gain, strong LTE sales and the rollout of FiOS Internet are key contributors to its growth. The company is presently riding high on increased smartphone sales and the introduction of new devices is likely to boost data revenues in the future. In the fourth quarter of 2014, the company’s smartphone penetration increased to 79% on several device launches aimed at boosting 4G LTE adoption.
Recently, Verizon announced that its Internet TV platform will include channels like AwesomenessTV and DreamWorksTV, and will feature more than 200 hours of original programming. This initiative primarily targets the young generation as the programs will be available on the mobile platform, which is evidently more popular with the youth. The company seeks to focus on two different categories of viewers through its Internet TV and fiber-based FiOS TV offerings. We believe this will considerably drive the company’s revenues in the coming quarters.
However, a saturated wireless market, intensifying competition, negative 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 these initiatives are capital intensive, they are likely to impact the company’s wireless segment’s EBITDA and EBITDA service margin going ahead.
Earnings Whispers
Our proven model does not conclusively show that Verizon is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Verizon’s Zacks ESP stands at 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate are poised at 95 cents.
Zacks Rank: Verizon carries a Zacks Rank #3 (Hold) increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.
Stocks to Consider
Here are some other companies to consider as our model shows these have the right combination of elements to post an earnings beat this quarter.
Cogent Communications Holdings, Inc. CCOI with an Earnings ESP of +33.33% and a Zacks Rank #3.
CenturyLink, Inc. CTL with an Earnings ESP of +1.70% and a Zacks Rank #3.
Telecom Argentina S.A. TEO with an Earnings ESP of +8.93% and a Zacks Rank #3.
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