Verizon Communications, (VZ – Free Verizon Stock Report) the telecommunications giant and Dow-30 component, reported 2017 fourth-quarter earnings of $0.86 a share, two cents below our estimate and on par with the year-ago result, on a better-than-expected 5% top-line increase. And investors seem rather nonplussed by the company's recent performance, with the stock hardly reacting on the news.
Truth be told, this uninspiring performance comes as no great surprise. Notably, in our most recent full-page review, we warned that the outlook for the balance of the year and into 2018 was nothing to write home about, due to the combined effects of the April 1st, 2016 sale of the company's high-margined wireline operations in California, Florida, and Texas to Frontier Communications, the ongoing shift to wireless customers to device payment plans, and the ramping up of its new business model.
But the news is not all bad. Indeed, during the December quarter, VZ Wireless reported a 1.7% uptick in fourth-quarter revenues (driven by improving service revenues), the company's first year-over-year wireless revenue growth in two years. The percentage of phone activations on device payment plans was approximately 80% in the December quarter, compared to roughly 67% at year-end 2016. This has helped ease service revenue declines, and enabled VZ Wireless to exit 2017 with positive comparisons in service revenues. VZ Wireless added 1.2 million retail postpaid net additions during the final stanza of 2017, bringing Verizon's total number of retail connections to 116.3 million, a 1.8% year-over-year increase. The year before, retail connections were up 1.9%, so VZ Wireless is feeling a bit of a pinch from a rather competitive marketplace.
Separately, total revenues for the Wireline division's FiOS fiber-optic-based services were up a modest .1% year over year, driven by 47,000 FiOS Internet connections and a loss of 29,000 FiOS Video connections in the final quarter of 2017.
The outlook for Verizon's performance in 2018 has improved a bit of late, thanks, in part, to the recent tax reform. More specifically, given the aforementioned turnaround in VZ Wireless service revenues, we are now more confident that the company will post full-year consolidated revenue growth in the low single-digits. In addition, the expected saving from tax reform will generate a net $3.5 billion to $4.0 billion increase in cash flow from operations in 2018. This is expected to yield a significant increase in 2018 share net, and we have therefore upped our full-year earnings estimate by $0.25, to $4.15 a share. Finally, the 2018 effective tax rate is projected to be in the range of 24% to 26%.
In summation, this blue chip stock remains a good choice for conservative investors, thanks to its impressive yield (more than twice that of the Value Line median), Highest (1) Safety rank, and appealing capital-appreciation potential through the early years of the coming decade.
About The Company:Verizon Communications was created by the merger of Bell Atlantic and GTE in June of 2000. It is a diversified telecom company with a network that covers a population of about 298 million and provides service to nearly 98.2 million. In the decade or so, it has acquired MCI (1/06), Alltel(1/09) and Yahoo! (6/17). The company is also the largest provider of print and on-line directory information. Has a wireline presence in 28 states & Washington, D.C. and a wireless presence in every U.S. state & D.C., as well as operations in 19 countries.
— Kenneth A. Nugent
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
