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Wireline Revenue Woes to Hurt Verizon's (VZ) Q1 Earnings

Zacks Equity Research

Verizon Communications Inc. VZ is scheduled to release first-quarter 2019 results before the opening bell on Apr 23. The company is likely to record lower year-over-year revenues from the Wireline segment owing to secular pressures from legacy technologies.

Whether this will hurt the bottom line of the company remains to be seen.

Key Factors

Verizon is facing a steady decline in legacy wireline services due to competitive pressure from voice-over-Internet protocol service providers and aggressive triple-play (voice, data, video) offerings by the cable companies. The company is continually losing Fios Video connections amid pressures from cord-cutting of video bundles, as consumers are increasingly canceling pay TV packages for cheaper streaming options from Netflix, Amazon, Hulu and other services. Verizon expects the secular and pricing pressure to affect its Wireline revenues in the first quarter, undermining its overall quarterly performance.

In order to make wireline profitable, Verizon is making significant investments and is streamlining its cost structure. The company has embarked on ‘One Fiber’ initiative that aims to build a single, highly-resilient and scalable fiber network to offer advanced data services to customers across consumer, business and enterprise customer groups. This, in turn, is likely to weigh on margins and strain its bottom line in the quarter. Wireline EBITDA for first-quarter 2018 is expected to be $1,386 million compared with $1,603 million recorded in the year-ago quarter.

The Zacks Consensus Estimate for revenues from the Wireline segment is pegged at $7,310 million. The segment reported $7,557 million a year ago. The lower revenue expectations can be attributed to soft demand and cheaper competitive options.

Total revenues for the company are expected to be $32,165 million. It generated revenues of $31,772 million in the prior-year quarter. (Read More: Will Solid Wireless Traction Boost Verizon Q1 Earnings?)

Earnings Whispers

Our proven model conclusively shows that Verizon is likely to beat earnings in the first 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 +0.03%. 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. Quote

Zacks Rank: Verizon has a Zacks Rank #3. This, combined with 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.
Other Stocks to Consider

Here are some other 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:

CommScope Holding Company, Inc. COMM is slated to release quarterly numbers on May 7. It has an Earnings ESP of +1.89% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Juniper Networks, Inc. JNPR is scheduled to release results on Apr 25. The company has an Earnings ESP of +10.00% and has a Zacks Rank #2.

The Earnings ESP for Acacia Communications, Inc. ACIA is +5.73% and it carries a Zacks Rank of 2. The company is slated to report quarterly numbers on May 2.

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