On Jul 26, we maintained our Neutral recommendation on Verizon Communications (VZ). The company is on track to tap opportunities within the telecom sector by launching new services and devices coupled with strong subscriber additions. However, the company’s future operating performance might be impacted by certain headwinds. The leading wireless carrier in the North America holds a Zacks Rank #3 (Hold).
We believe that Verizon remains focused on growing its strategic areas with investments in key sectors for future growth. The company 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.
The company’s new data plan — Share Everything —accounts for almost 36% of its post-paid account base and is expected to generate high revenues over the long term.
On the wireline front, Verizon is committed to improve long-term profitability through product streamlining and process simplification initiatives as well as cost management actions. The New York-based company is targeting market expansion by strengthening its international foothold. We believe that the company’s foray into overseas arenas will provide a significant opportunity to grow beyond the saturated national wireless market.
Along with these, collaborations with other top companies, consistent strong sales of smartphones, well-performing FiOS business segment and healthy financial position will help the company to generate high revenue and earnings in the coming days.
Nevertheless, we stay on the sidelines taking into account the various risk factors. These include persistent erosion in access lines, uncertain returns from investments, iPhone subsidies and intense competition from cable companies and other alternative service providers.
For the third and fourth quarters of 2013, the respective Zacks Consensus Estimate for earnings is 75 cents and 65 cents per share. This reflects respective year-over-year growth of 17.3% and 69.8%.
Companies operating within the telecommunication sector that are worth taking note of include Nippon Telegraph and Telephone Corp. (NTT), Hawaiian Telcom Holdco Inc. (HCOM) and Cincinnati Bell Inc. (CBB). While Nippon Telegraph and Hawaiian Telcom hold Zacks Rank #1 (Strong Buy), Cincinnati Bell carries a Zacks Rank #2 (Buy).
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