Verizon Communications (VZ – Free Verizon Stock Report), the telecommunications giant and Dow-30 component, has reported third-quarter earnings of $0.98 a share, two cents higher than our estimate, but three cents shy of the year-ago figure, on a 2.5% top-line improvement. Investors seem unfazed, with Verizon stock up modestly on the news.
As has been the case of late, the company's performance does not come as a great surprise, as expectations were relatively low. Notably, in our September full-page review, 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 September quarter, VZ Wireless posted a 2.4% drop in revenues (versus a 1.9% drop in the June quarter), 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, on par with the June-period figure. Management expects this metric to more or less remain constant during the current (fourth) quarter of this year. Verizon Wireless reported a net increase of 603,000 retail postpaid connections in the September interim, 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 stands at 109.7 million. Separately, total revenues for the Wireline division's FiOS fiber-optic-based services were up 4.8% year over year, thanks to solid demand in both consumer and business markets.
Meantime, Verizon certainly looks a bit different than it did this time last year. The company closed on the $4.48 billion purchase of Yahoo! on June 13th, and it announced that it had penned fiber purchase agreements with Corning (CNIG) and Prysmian to extend its network lead and position it to deliver new multiuse fiber services, including 5G, while complementing small-cell deployment.
Finally, Verizon is on track to report 2017 earnings of about $3.77 a share, with a modest increase in the works for next year. This blue-chip stock remains 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 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.
