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Is Verizon (VZ) Likely to Disappoint Q3 Earnings Estimates?

U.S. telecom behemoth Verizon Communications Inc.VZ is scheduled to report its third-quarter 2015 financial numbers on Oct 20, before the opening bell.

Last quarter, Verizon recorded a 2.97% positive earnings surprise. Let's see how things are shaping up ahead of this announcement.

Factors Likely to Influence this Quarter

Verizon is currently focusing on online content delivery, mobile video and online advertising for growth. Verizon acquired AOL Inc. with the aim to boost its presence in the mobile video streaming services market. Meanwhile, digital advertising firm Millennium Media was purchased by AOL in order to create an ad-based revenue stream through Verizon's mobile streaming service - 'Go90'. These businesses should generate significant revenues for Verizon in the quarter given that its legacy telecom business is facing serious pricing competition.

Consistent market share gain, rollout of FiOS Internet, increasing market penetration of 4G LTE services and higher sale of smart devices should also drive the company's earnings in the third quarter. Moreover, Verizon's business restructuring and focus on the Internet of Things platform look promising and may drive higher margins and solid cash flow in the to-be-reported quarter.

However, the company is expected to feel the pinch in the near term since it has lagged the price transformation drive in the industry. Further, a saturated wireless market, intensifying competition, access lines losses, heavy capital spending and regulatory risks are some of the factors that may affect the quarter's performance.

Earnings Whispers

Our proven model does not conclusively show that Verizon is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP : Verizon has an earnings ESP of -0.98%. This is because the Most Accurate estimate stands at $1.01 while the Zacks Consensus Estimate is pegged higher at $1.02.

Zacks Rank : Verizon has a Zacks Rank #3 which increases the predictive power of ESP. However, the company's negative ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

CenturyLink, Inc. CTL has an earnings ESP of +9.23% and a Zacks Rank #1.

Cogent Communications Holdings, Inc. CCOI has an earnings ESP of +16.67% and a Zacks Rank #3.

AT&T, Inc. T has an earnings ESP of +1.47% and a Zacks Rank #3.

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AT&T INC (T): Free Stock Analysis Report

CENTURYLINK INC (CTL): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

COGENT COMM HLD (CCOI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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