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It has been about a month since the last earnings report for Verizon Communications Inc. VZ. Shares have lost about 11.6% in the past month, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is VZ due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Verizon Q4 Earnings Miss, Revenues Beat Estimates
Verizon reported mixed financial numbers in the fourth quarter of 2017. While the top line beat the Zacks Consensus Estimate, the bottom line lagged the same.
Quarterly-GAAP net income was $18,783 million compared with $4,600 million in the year-ago quarter. Adjusted earnings per share of 86 cents lagged the Zacks Consensus Estimate of 88 cents.
Total revenues increased 5% year over year to $33,955 million, which beat the Zacks Consensus Estimate of $33,145.7 million.
Total operating expenses in the quarter under review were $29,162 million, up 19.9% year over year. Operating income totaled $4,793 million, down 40.3% year over year.
Cash Flow and Liquidity
As of Dec 31, 2017, Verizon generated $25,305 million of cash from operating activities compared with $22,810 million in the year-ago quarter.
At the end of the reported quarter, Verizon had $2,079 million of cash and cash equivalents and $113,642 million in long-term debts compared with $2,880 million and $105,433 million, respectively, at the end of 2016.
Total revenues were $23,771 million, up 1.7% year over year. Service revenues dropped 2.9% to $15,880 million. Equipment revenues increased 12.9% to $6,475 million. Other revenues totaled $1,416 million, up 9.1%.
Operating expenses declined 2.4% to $16,653 million. Operating income improved 12.8% to $7,118 million. Quarterly operating income margin was 29.9% compared with 27.0% in the year-ago quarter.
Segment EBITDA increased 9.6% to $9,462 million. EBITDA margin was 39.8% compared with 36.9% in the prior-year quarter.
As of Dec 31, 2017, Verizon had 116.257 million retail subscribers, up 1.8% year over year. Of the total, retail postpaid subscriber count was 110.854 million, up 1.9%. Meanwhile, retail prepaid user count was 5.403 million, down 0.8%. In the reported quarter, the company gained 1.174 million postpaid customers but lost 0.184 million prepaid customers.
Quarterly retail postpaid churn rate was 1.00% compared with 1.10% in the year-ago quarter. Total retail churn rate was 1.24% compared with 1.34% in the year-ago quarter. Of the total activated phones, smartphones accounted for 96.7% compared with 95.2% in the prior-year quarter. Retail postpaid ARPA (average revenue per account) was $135.78 compared with $141.89 in the year-ago quarter.
Total revenues in the segment were $7,617 million, up 0.1% year over year. Consumer retail revenues were down 1.4% to $3,188 million. Enterprise Solutions revenues inched up 0.4% to $2,285 million. Partner Solutions revenues were up 0.3% to $1,209 million. Business Markets revenues grossed $885 million, up 7.7%. Other revenues declined 30.6% to $50 million.
Operating expenses increased 3.9% to $7,555 million. Quarterly operating income was $62 million, down 81.6% year over year. Quarterly operating margin was 0.8% compared with 4.4% in the year-ago quarter.
Segment EBITDA fell 10.0% to $1,594 million. EBITDA margin was 20.9% compared with 23.3% in the year-ago quarter.
As of Dec 31, 2017, FiOS video subscriber base was 4.619 million (down 1.6% year over year). FiOS Internet subscriber count was 5.850 million (up 3.5%) and FiOS digital voice residence connections totaled 3.905 million (up 0.3%). During the quarter, Verizon lost 29,000 FiOS video subscribers and 15,000 FiOS digital voice residential connections while gaining 47,000 FiOS Internet subscribers.
High-speed internet connection dropped 19.9% year over year to 1.109 million while total broadband connection number was 6.959 million, down 1.1%. Primary residence switched access connections declined 16.2% to 2.708 million and Primary residence connections fell 7.2% to 6.613 million. Total retail residence voice connections declined 7.5% to 6.804 million and total voice connections contracted 8.0% to 12.821 million.
Outlook for 2018
On a GAAP basis, Verizon expects positive service revenue growth by the end of 2018 or early 2019. Capital spending for 2018 is expected in the range of $17.0 billion to $17.8 billion, including the commercial launch of 5G. The expected savings from tax reform will boost cash flow from operations by $3.5-$4.0 billion in 2018. This is expected to yield a 55-65% rise in 2018 EPS. The effective tax rate for 2018 is projected in the range of 24-26%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been five revisions higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum.
Verizon Communications Inc. Price and Consensus
Verizon Communications Inc. Price and Consensus | Verizon Communications Inc. Quote
At this time, VZ has a poor Growth Score of F, however its Momentum is doing a lot better with an A. Charting a somewhat similar path, the stock was also allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than value investors.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise VZ has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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