Can Verizon Communications Inc. Stock Deliver for Shareholders in 2018?
If you exclude the dividend yield, Verizon Communications Inc. (NYSE:VZ) didn’t have a great year in 2017. VZ stock lost 1% of its value, while the S&P 500 gained almost 20%.
Looking ahead to 2018, Verizon’s already informed investors in mid-January that it expects the Tax Cuts and Jobs Act, which cuts the U.S. federal corporate tax rate to 21% from 35%, to result in a one-time net reduction of its deferred income tax liabilities by $16.8 billion.
U.S. GAAP accounting requires these charges to be taken in the quarter in which the legislation was enacted. Verizon will also see a one-time earnings gain of approximately $4.10 in Q4 2017.
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Verizon stands to benefit more than its competition because it pays higher cash taxes. As a result of the $1.7-billion annual gain, the company is giving 200,000 employees a $1,000 bonus.
It’s too early to know who the ultimate winners will be from the tax cut, but VZ stock appears to be at the front of the line when it comes to large-cap stocks.
Beyond Tax Cuts
InvestorPlace contributor Tom Taulli discussed in early January the three reasons VZ stock could be a winner in 2018.
Of the three he mentioned, his thoughts on the digital opportunity available to Verizon was the most compelling argument for driving VZ stock higher:
“Currently, Oath has roughly 5% of the digital ad market, which is dwarfed by Facebook, Inc. (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL). But this base is likely to grow over the years, as Verizon will benefit from synergies between their mobile business and video assets… The company thinks the user base can hit 2 billion [now 1 billion] in three to five years.”
After all, why did Verizon spend $4.5 billion buying Yahoo! if it didn’t have a plan for winning a more significant chunk of the advertising market?
Oath CEO Tim Armstrong is careful not to tip his hand about the future of his division’s business. But it’s likely that it would use data to deliver more wireless customers.
Recently, Verizon’s taken a more balanced approach, opting to focus on the quality of content it provides its ad-supporting readers, rather than emphasizing its data use.
“By no stretch of the means are we walking away from data,” Tim Mahlman, Oath’s president of advertiser and publisher strategy, told Business Insider at a meeting at CES. “Data is still a very powerful tool for us. Our audience insights tool is probably the lean-in moment for many our clients.”
Any business that can put a dent in the advertising duopoly that is Facebook and Google should do very well. I’m not sure that Verizon is going to be the entity to do that — Amazon.com, Inc. (NASDAQ:AMZN) is doing big things in this area — but you never know.
Bottom Line on VZ Stock
I don’t think there’s going to be anything in its Q4 2017 earnings report that screams “buy.” That said, the Oath business has an opportunity to turn a few heads in the next 12-24 months.
I don’t see any reason why income investors wouldn’t want to own VZ stock given its 4.5% yield. That said, it wouldn’t be on my top-ten list of stocks to buy, but that doesn’t mean it shouldn’t be on yours.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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