By Greg Jensen
Verizon (VZ) announced disappointing numbers this morning before the opening bell. After stripping out charges and one-time items, they posted adjusted Earnings per Share (EPS) of $0.38, vs. street expectations of around $0.50, and $0.52 last year. Those charges are usually not particularly relevant in an earnings story, but Verizon is owned by many for the dividend yield (around 4.8%) so any hint of reduced cash flow is sometimes met with nervousness amongst stockholders. On the surface these numbers are not great and the stock is trading over 1% lower in the pre-market as I write. I don’t expect that to last, and any dip in the price could be a good buying opportunity.
To understand why, we need to look first at the reasons given for the miss. Partially it was attributed to the effects of “superstorm” Sandy being greater than analysts’ predictions. This may be so, but as devastating as Sandy was for those affected; it is really just another one-time item. It is, we hope, unlikely to be repeated. There was also talk that iPhone subsidies had more of an effect than anticipated. Once again, this is a short term hit. In this case, the case could well be made that this is a positive for the stock going forward. More subsidies mean more contracts, and more contracts means more profit. There’s a reason cell phone companies subsidize phones. It is possible that more subsidies from VZ could also be good news for holders of Apple stock (AAPL) but that is a subject for another time.
Secondly, there are some positives in the revenue numbers. Overall the top line was up 5.7% at $30.05 Billion, beating expectations of $29.83 Billion, with wireless revenues leading the way, up 9.5%. Over time, wire line services could well be a drag, and it remains to be seen how successful VIOS will be, but healthy and improving wireless revenues give an increased margin of error.
Lastly, the price action suggests that upward is the path of least resistance for the stock.
Since breaking through the $42 level in June, VZ has returned there three times, bouncing back each time. A bottom has been formed that suggests an upward move. Even if that doesn’t materialize, there is at least a level to watch for possible stop losses at around $41.50.
It would seem that, on reflection, traders agree with me. While I have been writing, VZ has recovered those early losses and is actually trading up slightly at around $42.60. This doesn’t mean that the opportunity has been missed, however. For those seeking to juice their portfolio yield without adding excessive risk, VZ still looks to me like a viable long-term play.