Verizon (VZ – Free Verizon Stock Report), the telecommunications giant and Dow-30 component, reported second-quarter earnings of $0.96 a share, on par with our estimate and higher than the year-ago figure, on a better-than-expected top-line performance. Investors seemed pleased with the results, with Verizon stock up about 6% on the news.
The company's performance comes as no great surprise as expectations were low. To wit, in our June full-page report, we warned that the outlook for the next couple of years was rather underwhelming, due to the combined effects of the April 1, 2016 sale of Verizon's high-margined wireline operations in California, Florida, and Texas to Frontier Communications (FTR); the ongoing shift of wireless customers to device payment plans; and the ramping up of its new business model. In the June quarter, VZ Wireless posted a 1.9% drop in revenues (a good bit better than the 5.1% decrease reported in the March period), which may be attributed to more customers continuing to choose unsubsidized device payment plans, decreased overage revenues, lower postpaid customers, and continued promotional activity. The percentage of phone activations on device payment plans was about 77% in the quarter, compared to 76% three months ago. Management expects this metric to more or less remain constant during the third quarter of this year. Verizon Wireless reported a net increase of 614,000 retail postpaid connections in the June quarter, a dramatic improvement on the net decline of 307,000 postpaid connections in the March period, with much of the good news attributable to the recent launch of Verizon Unlimited. As a result, Verizon's total number of retail postpaid connections now sits at 109.1 million, up 1.2% year over year. Separately, total revenues for the Wireline divisions' FiOS fiber-optic-based services were up 4.4% year over year, thanks to solid demand in both consumer and business markets.
Verizon remains quite active on the acquisition front. Indeed, the company closed on the $4.48 billion purchase of Yahoo! on June 13 and it announced that it had inked fiber purchase agreements with Corning and Prysmian to extend the company's network lead and position it to deliver new multiuse fiber services, including 5G, while complementing small-cell deployment.
In summation, Verizon remains on track to post 2017 earnings of about $3.75 a share, with a modest increase in the cards for the following year. This blue-chip stock is a good choice for conservative portfolios, thanks to its impressive dividend yield (more than twice that of the Value Line median), Highest (1) Safety rank, and attractive capital-appreciation potential over the next three to five years.
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 290 million and provides service to nearly 91.2 million. In the last few years, has acquired MCI (1/06) and Alltel (1/09). 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.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
