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Can Higher Wireless Revenues Buoy Verizon (VZ) Q2 Earnings?

Zacks Equity Research

Verizon Communications Inc. VZ is scheduled to release second-quarter 2019 results before the opening bell on Aug 1. The company is poised to witness solid traction from the impending 5G boom. Also, it is likely to record higher year-over-year revenues from the Wireless segment, which accounts for lion’s share of total revenues.

Whether this will benefit the bottom line remains to be seen.

Top-Line Expansion

Verizon continues to deploy the latest 5G technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investments. During the second quarter, the telecom behemoth launched 5G Ultra Wideband network in select locations of Chicago and Minneapolis, ahead of schedule, followed by similar such launch in Denver and Providence. These are expected to drive the upcoming results.

The company’s current focus on online content delivery, mobile video and online advertising should stoke growth. During the quarter, Verizon collaborated with industry-leading web-based video playback services providers, THEO Technologies and IRIS.TV, to enrich its video streaming network. The integration of the THEOplayer Universal Video Player and IRIS.TV’s Video Personalization Platform expanded the capabilities of Verizon Digital Media Services to offer more personalized service to users and thwart competitive pressure.

Verizon expects considerable growth in its Wireless business. The company anticipates healthy improvement in segment margin on the back of strong fiber-optic network. During the second quarter, Verizon inked an agreement with the National Basketball Association (“NBA”) to augment network capabilities of all the 29 arenas that host NBA teams. Leveraging the extensive fiber network deployment and video broadcast distribution capabilities of its media services division, the strategic deal enables Verizon to better connect with the sporting buffs. Each arena will be connected to network hubs in Newark, NJ and Atlanta, GA, while a dedicated virtual network in Dulles, VA, will be operated by Verizon Media on match days to monitor real-time video traffic quality and data across the network.

Buoyed by such tailwinds, the Zacks Consensus Estimate for the Wireless segment’s operating revenues for the to-be-reported quarter is currently pegged at $22,912 million, which is relatively higher than the year-ago reported figure of $22,449 million. The higher revenue expectations can be attributed to an uptick in demand and an upgrade to state-of-the-art infrastructure.

Total revenues for the company are expected to be $32,395 million. It generated revenues of $32,203 million in the prior-year quarter.

Other Key Factors

Revenues from the Wireline segment are likely to be $7,205 million, down from $7,459 million reported a year ago owing to competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, and video) offerings by cable companies. In order to make Wireline profitable, Verizon is making significant investments and is streamlining its cost structure. These are likely to weigh on the company’s margins.

Our proven model shows that Verizon is likely to beat earnings in the second quarter as it possesses the key components. 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. This is perfectly the case here as you will see below:

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +0.52% with the former pegged at $1.21 and the latter at $1.20. 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 has a Zacks Rank #3. This increases the predictive power of our model and a positive ESP makes us reasonably confident of an earnings beat.

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

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

Ciena Corporation CIEN is set to release quarterly numbers on Aug 29. It has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Earnings ESP for Motorola Solutions, Inc. MSI is +1.25% and it carries a Zacks Rank of 3. The company is set to report quarterly numbers on Aug 1.

The Earnings ESP for TELUS Corporation TU is +2.61% and it carries a Zacks Rank of 2. The company is likely to report quarterly numbers on Aug 2.

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Motorola Solutions, Inc. (MSI) : Free Stock Analysis Report
 
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Ciena Corporation (CIEN) : Free Stock Analysis Report
 
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