We reaffirm our Neutral recommendation on
Verizon Communications Inc.
). The company's fourth-quarter 2013 top and bottom-line results
surpassed the Zacks Consensus Estimate and improved year over
year. Currently, the Zacks Consensus Estimate for the first
quarter 2014 earnings is pegged at 83 cents, representing 21.69%
growth year over year.
Verizon is currently focusing on the buyout of the remaining
45% stake of Verizon Wireless, which is held by Vodafone Group.
This deal is touted to be one of the biggest in the telecom space
after Vodafone's acquisition of Germany's Mannesmann AG in 2000
(for approximately $142 billion) and Time Warner Inc.'s merger
with AOL (for $124 billion) in 2001.
We believe the complete takeover of its wireless business
would translate into greater synergies for Verizon, which already
holds a significant place in the U.S. wireless market. Verizon
Wireless, with operating income over $25 billion, is not only a
key driver of Verizon Communications' earnings, but also provides
an edge over close rivals like
Verizon has a strong foothold in the wireless business and
continues to capture additional market share via robust
deployment of the 4G Long Term Evolution (LTE) network. This
leads to improved operating and capital efficiency. The company
is leading the industry in terms of 4G deployment.
On Jan 6, Verizon Wireless announced its agreements to
transfer 700 MHz A Block spectrum licenses to
) in exchange for cash ($2.4 billion) and spectrum licenses in
the AWS and PCS bands which it will use to add capacity to its 4G
LTE network. The transaction expected to close in the first half
of 2014. As of Dec 31, 2013, it covered 500 markets and more than
305 million people.
We also appreciate various strategic initiatives that the
company has taken over the last couple of months. The company's
new data plan - Share Everything - accounts for almost 46% of its
post-paid account, representing 16.2 million users. Going
forward, this plan is expected to boost the company's device
adoption and usage resulting in a higher number of devices and
revenue per account.
The company's wireline division is struggling with persistent
losses in access lines as a result of competitive pressure from
voice-over-Internet protocol (VoIP) service providers and
aggressive triple-play (voice, data, video) offerings by the
cable companies. These are weighing on the company's revenues and
In order to make it profitable, Verizon is making significant
investments and is streamlining its cost structure. It remains
unclear if and when a reasonable return can be achieved from such
investments. Further, wireline revenue trends would remain
challenging over the next couple of quarters due to the company's
actions to improve profitability. The product rationalization and
process simplification initiatives would dilute profits in the
In addition, the development of new technologies, such as
Internet Protocol-based services, including VoIP and super
high-speed broadband and video, could be subject to conflicting
regulations between the FCC and various state and local
authorities, which could significantly increase the cost of
implementing and introducing new services based on this
As a result, we remain cautious on the company's near-term
Currently, Verizon retains a Zacks Rank #3 (Hold).
SPRINT CORP (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
T-MOBILE US INC (TMUS): Free Stock Analysis
VERIZON COMM (VZ): Free Stock Analysis Report
To read this article on Zacks.com click here.