On Mar 5, we maintained our Neutral recommendation on Verizon Communications Inc. (VZ), considering its tight grip over the telecommunication business, plus ample growth opportunities and market share capture potentiality. However, the company faces certain headwinds that will likely slow down its expansion speed in the coming months. The largest wireless carrier in the North America also holds a Zacks Rank #3 (Hold).
We believe that Verizon has a strong foothold in the wireless sector and continues to tap additional market share via robust deployment of the 4G Long Term Evolution (:LTE) network. This is expected to lead to improved operating and capital efficiency.
Strong sales of Apple’s iPhone as well as increased adoption of Google Inc.’s (GOOG) Android smartphones will boost data revenue going forward. The company has also launched a number of data plans that are gaining popularity among customers.
We also appreciate the various strategic initiatives that Verizon has taken over the last two years to enhance profitability in the coming quarters. These include innovation centers across Waltham, Massachusetts and San Francisco; Isis – a mobile commerce platform launched in partnership with AT&T and T-Mobile USA; and Converged solutions – an agreement with the affiliates of Comcast Corporation (CMCSA), Time Warner Cable (TWX), Bright House Networks and Cox Communications Inc.
Apart from these, acquisition of spectrum licenses, commitment to enhance the performance of the wireline segment and healthy financial position will work in favor of the New York headquartered company.
Despite the positives, we prefer to stay on the sidelines owing to Verizon’s soft fourth quarter results plus risks factors including persistent erosion in access lines, uncertain returns from investments, iPhone subsidies, and intense competition from cable companies and other alternative service providers.
For the first and second quarters of 2013, the Zacks Consensus Estimates for earnings are 65 cents and 72 cents per share, respectively. This reflects respective year-over-year growth of 10.64% and 12.93%.
Foreign telecom firms that are performing impressively are French giant France T (FTE) and Canada-based Rogers Communications Inc. (RCI). Both the stocks carry Zacks Rank #2 (Buy).
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