For Immediate Release
Chicago, IL – August 2, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Verizon Communications Inc. (VZ), Apple Inc. (AAPL), Google Inc. (GOOG), AT&T Inc. (T) and Sprint Nextel Corp. (S).
Get the most recent insight from Zacks Equity Research with the free Profit from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Wednesday’s Analyst Blog:
Earnings Scorecard: Verizon
The largest U.S. mobile service provider Verizon Communications Inc. (VZ) generated double-digit earnings growth and significant cash flow growth once again in second quarter 2012.
Second Quarter Review
Verizon’s second quarter adjusted earnings of 64 cents were in line with the Zacks Consensus Estimate and 7 cents above the year-ago earnings. Revenue improved on continued strong wireless, FiOS fiber-optic and strategic services.
Wireless revenue advanced on the back of strong data revenues and subscriber growth. Despite the slowing growth in the U.S. mobile market, rapid expansion of 4G Long-Term Evolution (:LTE) services, strong sales of Apple Inc.’s (AAPL) iPhone and increased adoption of Google Inc.’s (GOOG) Android smartphones led to the growth in retail wireless subscribers.
In the wireline segment, momentum for the FiOS fiber-optic network and sale of strategic service in the U.S. remained strong. The penetration rate of both FiOS Internet and FiOS TV accelerated to approximately 36.6% and 32.6%, respectively. Nevertheless, revenue fell on continued decline in global business.
Coming to liquidity, Verizon’s cash balance decreased to $10 billion from $13.4 billion at the end of 2011 and debt rose by $0.6 billion in the first half. Net debt-to-adjusted EBITDA remained stable at 1.2 times with year-end 2011.
(Read our full coverage on this earnings report: Verizon Meets Ests, Grows Y/Y)
For 2012, the company expects to generate double-digit earnings growth of 10% on continued healthy wireless margins and improving wireline margins.
Despite the ongoing efforts to expand and improve wireless and wireline networks, Verizon continues to focus on maximizing free cash flow. Management expects capital efficiency (capital expenditure-to-revenue ratio) to continue showing steady improvements; i.e. the ratio will decline throughout the year.
Agreement of Analysts
Estimates reflect a positive bias for the third quarter, fiscal 2012 and 2013 over the last 30 days.
For the third quarter, out of 26 analysts, 17 made positive revisions while 6 moved in the opposite direction over the last 30 days. For fiscal 2012, 11 analysts out of 31 made upward revisions while 10 moved in the opposite direction. For fiscal 2013, out of the 30 covering analysts, 18 revised their estimates upward while 5 made downward revisions.
The analysts believe that Verizon will see improved revenue and earnings in both wireless and wireline businesses. Verizon is experiencing a solid momentum in its wireless business, as subscriber additions remain strong with a low churn rate (customer switch to competitor), in fact the lowest in the industry.
The company is way ahead of its major rival AT&T Inc. (T) and Sprint Nextel Corp. (S) in terms of 4G deployment, which reached 337 markets covering more than 200 million people (nearly 75% of the U.S. population) as of July 19. Verizon will continue to expand 4G networks and expects to reach the entire nationwide 3G footprint by the middle of next year.
Further, the company will continue to achieve wireless growth and profitability from its focus on gaining share in the retail post-paid market, increasing the penetration of smartphones, and selling more Internet devices such as tablets. Besides, Verizon has adopted a new shared data strategy, which is considered the biggest innovation in wireless pricing over the past several years. The new strategy — Share Everything — will maximize the carrier’s revenue over the long term. All these developments and operating efficiencies would help Verizon to reduce $2 billion in costs this year, thereby driving more profitability in the business.
In the wireline business, Verizon continues to improve long-term profitability through product streamlining and process simplification initiatives as well as cost management actions. Some analysts believe that though these measures will lead to improved revenue, high operating margins and greater market share in the long term, it might dilute short-term revenue and margins.
In addition, the company’s wireline division is currently struggling with persistent losses in access lines that are weighing on its revenues and margins.
Magnitude — Consensus Estimate Trend
The magnitude of revisions for the third quarter is 68 cents, unchanged over the last 7 days but 2 cents higher in the last 30 days.
The Zacks Consensus Estimate for 2012 remained stable over the last 7 and 30 days at $2.50. Similarly, the Zacks Consensus Estimate for 2013 remained unchanged at $2.81 over the last 7 days but was raised by 2 cents in the last 30 days.
With respect to earnings surprises, the company’s fairly good track record is expected to continue in the coming quarters. Verzion produced a positive average earnings surprise of 0.81% over the last four quarters, indicating that it outpaced the Zacks Consensus Estimate by that amount over the last year.
In the recently concluded quarter, the company did not surprise us by reporting earnings in line with our expectations.
Fiscal 2012 is expected to be profitable for Verizon considering the promises in both wireless and wireline businesses. Moreover, the company aims to enhance shareholder value throughout the year.
However, we remain skeptical about returns from the 4G wireless and wireline FiOS networks, persistent access line losses, iPhone subsidies, hindrances in spectrum deals and intense competition from cable companies and other alternative service providers.
We are currently maintaining our long-term Neutral rating on Verizon. For the short term (1–3 months), the stock retains a Zacks #3 (Hold) Rank.
Want more from Zacks Equity Research? Subscribe to the free Profit from the Pros newsletter: http://at.zacks.com/?id=5515.
About Zacks Equity Research
Zacks Equity Research provides the best of quantitative and qualitative analysis to help investors know what stocks to buy and which to sell for the long-term.
Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.
Zacks "Profit from the Pros" e-mail newsletter provides highlights of the latest analysis from Zacks Equity Research. Subscribe to this free newsletter today: http://at.zacks.com/?id=5517
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Leon Zacks. As a PhD from MIT Len knew he could find patterns in stock market data that would lead to superior investment results. Amongst his many accomplishments was the formation of his proprietary stock picking system; the Zacks Rank, which continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Register for your free subscription to Profit from the Pros at http://at.zacks.com/?id=5518.
Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.
Follow us on Twitter: https://twitter.com/zacksresearch
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
Zacks Investment Research
800-767-3771 ext. 9339
More From Zacks.com