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Verizon (VZ) Beats Q4 Earnings Estimates, Offers Bullish View

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Zacks Equity Research
·5 min read
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Verizon Communications Inc. VZ ended 2020 on a strong note, reporting relatively solid fourth-quarter results with the top and bottom line beating the respective Zacks Consensus Estimate. This highlights a disciplined network strategy for long-term growth along with a focused roadmap for technology leadership. Verizon expects to witness strong 5G momentum heading into 2021 backed by customer-centric business model and diligent execution of operational plans.

Net Income

On a GAAP basis, net income for the December quarter was $4,718 million or $1.11 per share compared with $5,217 million or $1.23 per share in the prior-year quarter. The year-over-year decline is primarily attributable to income tax provision in the reported quarter compared with income tax benefit in the prior year. Excluding non-recurring items, non-GAAP net income for the reported quarter was $1.21 per share and surpassed the Zacks Consensus Estimate by 5 cents. For full year 2020, the company reported net income (GAAP) of $18,348 million or $4.30 per share compared with $19,788 million or $4.65 per share in 2019 owing to COVID-19 headwinds.

Verizon Communications Inc. Price, Consensus and EPS Surprise

Verizon Communications Inc. Price, Consensus and EPS Surprise
Verizon Communications Inc. Price, Consensus and EPS Surprise

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

Revenues

Quarterly aggregate operating revenues remained almost flat year over year at $34,692 million as total wireless service revenue growth and solid performance in Verizon Media were offset by lower wireless equipment revenue and decline in legacy wireline products. The top line beat the consensus estimate of $34,444 million. For full year 2020, total operating revenues declined to $128,292 million from $131,868 million in 2019.

Segment Results

Consumer: Total revenues fell 1.2% year over year to $23,919 million owing to significant fall in wireless equipment revenues due to low activation levels. Service revenues remained flat at $16,388 million while wireless equipment revenues fell 3.8% to $5,503 million due to lower customer activity. Other revenues totaled $2,028 million, down 5.4% year over year.

During the quarter, Verizon recorded 357,000 wireless retail postpaid net additions. This comprised 163,000 phone net additions and 81,000 tablet net losses, offset by 275,000 other connected device net additions. Postpaid smartphone net additions were 284,000 driven by new model launches and gradual reopening of all company-operated retail stores with all safety precautions. Total retail postpaid churn was 0.96% while retail postpaid phone churn was 0.76%. The company recorded 92,000 Fios Internet net additions with increasing work-from-home trend.

Segment operating income improved 2.7% to $7,073 million for operating margin of 29.6%, up from 28.4% in the year-ago quarter. Segment EBITDA increased 2.9% to $9,937 million, reflecting a margin of 41.5% compared with 39.9% in the prior-year quarter.

Business: Segment revenues were flat at $8,050 million as Verizon responded effectively to the challenges of COVID-19, handling increased traffic needs while meeting a surge in demand for connectivity and devices. The company recorded 346,000 wireless retail postpaid net additions in the quarter. This comprised 116,000 phone net additions, 116,000 tablet net additions and 114,000 other connected device additions.

The segment’s operating income was $950 million compared with $666 million in the year-ago quarter for respective margins of 11.8% and 8.3%. Segment EBITDA were up 18.4% to $1,981 million for a margin of 24.6% compared with 20.7% in the year-earlier quarter.

Revenues from Verizon Media improved 11.4% to $2.3 billion driven by strong advertising trends.

Other Details

Total operating expenses decreased 2.2% year over year to $27,512 million, while operating income increased 8.1% year over year to $7,180 million. Adjusted EBITDA was $11,724 million for respective margin of 33.8%.

Cash Flow & Liquidity

For 2020, Verizon generated $41,768 million of net cash from operating activities compared with $35,746 million in 2019 driven by strength in business framework and lower working capital requirement due to lower wireless volume. Free cash flow (non-GAAP) was $23.6 billion, up 32.4% year over year. As of Dec 31, 2020, the company had $22,171 million in cash and cash equivalents with $123,173 million of long-term debt compared with respective tallies of $2,594 million and $100,712 million in the year-ago period.

Guidance

Verizon offered a bullish guidance for 2021 based on the resilient earnings performance and projected trends. The company currently expects adjusted earnings in the range of $5.00 to $5.15 per share. While service and other revenues are likely to grow in excess of 2%, wireless service revenues are expected to grow more than 3%. Capital expenditure is likely to be $17.5-$18.5 billion.

Zacks Rank & Stocks to Consider

Verizon carries a Zacks Rank #3 (Hold) at present. Some better-ranked stocks in the broader industry are Gogo Inc. GOGO, Qualcomm Incorporated QCOM and Sonim Technologies, Inc. SONM, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gogo has a trailing four-quarter earnings surprise of 23.9%, on average.

Qualcomm has a long-term earnings growth expectation of 19.6%. It delivered a positive earnings surprise of 17.3%, on average, in the trailing four quarters.

Sonim has a trailing four-quarter earnings surprise of 2.2%, on average.

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