The largest U.S. mobile service provider
Verizon Communications
(
VZ
) is slated to release its first quarter 2012 earnings on April 18,
before the opening bell. The current Zacks Consensus Estimate is
pegged at 57 cents for the first quarter, representing a
year-over-year increase of 12.59%.
With respect to surprises, Verizon had a 1.25% average positive
earnings surprise in the trailing four quarters. In the
year-earlier quarter, the company had surprised us by reporting
earnings 2.0% higher than what we had expected.
The company did not release any financial forecast for the first
quarter during its fourth quarter conference call.
Fourth Quarter Flashback
Verizon's fourth quarter adjusted earnings missed the Zacks
Consensus Estimate by a penny and were two cents below the year-ago
earnings. The company recorded the highest year-over-year quarterly
revenue growth in 11 years mainly driven by continued strong
wireless services, FiOS fiber-optic services and strategic
services.
Wireless revenue advanced on the back of strong data revenues
and subscriber growth. Rapid expansion of 4G Long Term Evolution
(LTE) services, strong adoption of
Google Inc.
(
GOOG
) Android smartphones and the sale of
Apple Inc.
's (
AAPL
) iPhone led to the growth in retail wireless subscribers that was
the highest in three years.
Despite the solid momentum for FiOS fiber-optic network and
strategic services, Wireline revenue dipped on lower global
wholesale and other businesses. The penetration rate of both FiOS
Internet and FiOS TV accelerated to approximately 35.5% and 31.5%,
respectively.
Fiscal 2011 Flashback
Verizon exited the year with improving top and bottom lines.
Wireless business remained healthy while Wireline business started
showing stability. Gross subscriber additions remained strong and
the monthly churn rate (customer switch to competitor) was among
the lowest in the industry.
The company enhanced its balance sheet by reducing debt. Net
debt reduced to $41.8 billion from $46.1 billion at the end of
fiscal 2010. Net debt-to-adjusted EBITDA improved to 1.2 times from
1.3 times last year. This shows the company's ability to expand its
business further.
Agreement of Analysts
Estimates reflect a negative bias for both the first quarter and
fiscal 2012 over the last 30 days. For the first quarter, 11
analysts out of 26 made downward revisions while 2 moved in the
opposite direction. For fiscal 2012, out of the 31 covering
analysts, 15 revised their estimates downward while 1 revised it
positively.
The analysts made downward revisions primarily based on iPhone
subsidies, which will likely limit Verizon's margins and profits
throughout the year. Verizon is currently facing major setbacks
regarding its spectrum deals with a group of cable companies,
including
Comcast
Corporation
(
CMCSA
),
Time Warner Cable Inc.
(
TWC
) and Bright House Networks and Cox Communications Inc. It will
have an adverse impact on Verizon's financials should the deal
fail. But, if it succeeds, it might put pressure on the balance
sheet in the short term by reducing cash balances and increasing
capital expenditures before becoming accretive over the longer
term.
Further, the analysts believethat persistent access line losses
in wireline, competitive pressures from its largest rivals
AT&T Inc.
(
T
) and
Sprint Nextel Corp.
(
S
), high promotional and restructuring expenses would further limit
the earnings upside potential.
The analysts believe these negatives offset Verizon's strong
subscriber count and average revenue per user, which is driven by
increased penetration of smartphones and iPhones, in the U.S.
market in particular.
Magnitude - Consensus Estimate Trend
The magnitude of revisions for first quarter remained stable
over the last 7 days at 57 cents, but decreased from 58 cents over
the last 30 days.
Similarly, the Zacks Consensus Estimate for 2012 is $2.47, down
by a penny over the last 7 days and 2 cents over the last 30
days.
Neutral Recommendation
Verizon is poised to grow its revenue and earnings this year
based on the introduction of new smartphones, tablets and data
devices in the Wireless segment as well as continued strong FiOS
fiber-optic network and strategic services in the Wireline
business.
However, we remain skeptical about returns from the 4G wireless
and wireline FiOS networks, persistent access line losses, heavy
iPhone subsidies and intense competition from cable companies and
other alternative services providers.
We are currently maintaining our long-term Neutral rating on
Verizon. For the short term (1-3 months), the stock retains a Zacks
#3 (Hold) Rank.
APPLE INC (
AAPL
): Free Stock Analysis Report
COMCAST CORP A (
CMCSA
): Free Stock Analysis Report
GOOGLE INC-CL A (
GOOG
): Free Stock Analysis Report
SPRINT NEXTEL (
S
): Free Stock Analysis Report
AT&T INC (
T
): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis
Report
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research