Will COVID-19-Led Revenue Woes Dent Verizon (VZ) Q3 Earnings?

Verizon Communications Inc. VZ is scheduled to report third-quarter 2020 results on Oct 21, before the opening bell. In the last reported quarter, the company beat the Zacks Consensus Estimate by 2 cents.

The New York-based telecom and media giant is expected to have recorded lower aggregate revenues on a year-over-year basis, primarily driven by disruptions caused by the COVID-19 pandemic despite momentum in its wireless business.

Factors at Play

During the quarter under review, Verizon completed the world’s first end-to-end fully virtualized 5G data session in a live network. The feat enables the telecom giant to respond to customers’ latency and computing needs by providing the base for mobile edge computing and network slicing. Notably, the company became the highest bidder in the spectrum auction for the 3550-3650 MHz bandwidth held by Federal Communications Commission on Aug 25. The company bid for $1.9 billion to speed up the deployment of 5G services. This is expected to get reflected in the third-quarter results.

Verizon launched 5G Home Internet service in Minneapolis and Saint Paul during the quarter, bringing the tally to eight cities. In addition, the company collaborated with Amazon Web Services to add three more 5G mobile edge computing cities, bringing the total to five. The move enables developers to build new latency-sensitive applications with AWS Wavelength at Verizon’s 5G Edge.

During the quarter, Verizon aimed to reach a broader spectrum of customers by unlocking more value with a bundled offering at the same price and inked an agreement with The Walt Disney Company to offer more streaming content with its Mix & Match Unlimited plans. The company also upgraded some of the features of its subsidiary BlueJeans, which offers an interoperable cloud-based video conferencing service, to facilitate a seamless transition to a hybrid workplace with an increasing buildup in the back-to-office trend. These are expected to have driven the company’s earnings.

Verizon extended its digital advertising footprint during the quarter through more customer engagements in the Shark Experience platform and explore ways to leverage the speed and latency of 5G for transformative customer experiences. Moreover, in association with Inseego Corp, it unveiled the Inseego MiFi M2100 5G UW mobile hotspot to deliver super-fast speeds across its 5G Ultra Wideband and 4G LTE network. The company also offered a $6.6 billion worth contract to Samsung Electronics to provide communication equipment for its wireless network. The moves are likely to be reflected in the upcoming results.

However, adverse foreign currency translations, evolving market conditions post the deadly virus outbreak and continued investments for 5G deployments are likely to have led to soft margins. Moreover, waiving of wireless voice and data overage fees for all customers and expanded eligibility for low-income Internet programs are likely to have drained the exchequer. This might have affected its revenues in the to-be-reported quarter.

Plagued by such headwinds, the Zacks Consensus Estimate for total revenues for the company stands at $31,572 million. It generated revenues of $32,894 million in the prior-year quarter. The consensus mark for earnings is currently pegged at $1.22 per share, indicating a decline from $1.25 reported in the year-earlier quarter.

Key Developments in Q3

During the third quarter, Verizon inked an agreement to acquire TracFone Wireless, Inc. — a subsidiary of Mexico’s largest telecommunications company, America Movil. The acquisition is likely to expand the New York-based telecom giant’s portfolio into the value segment while complementing its leadership in the premium segment. It will bring enhanced access to Verizon’s wireless network and a suite of mobility products and services to a new customer base.

Earnings Whispers

Our proven model predicts an earnings beat for Verizon this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is perfectly the case here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.57%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Verizon Communications Inc. Price and EPS Surprise

Verizon Communications Inc. Price and EPS Surprise

Verizon Communications Inc. price-eps-surprise | Verizon Communications Inc. Quote

Zacks Rank: Verizon currently has a Zacks Rank #3.

Other Stocks to Consider

Here are some other companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this season:

Bandwidth Inc. BAND is set to release quarterly numbers on Oct 29. It has an Earnings ESP of +442.85% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Sensata Technologies Holding plc ST is +8.21% and it carries a Zacks Rank of 2. The company is set to report quarterly numbers on Oct 27.

The Earnings ESP for Corning Incorporated GLW is +0.59% and it sports a Zacks Rank of 1. The company is scheduled to report quarterly numbers on Oct 27.

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Verizon Communications Inc. (VZ): Free Stock Analysis Report
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