The U.S. telecom player Verizon (VZ, Financial) is slated to release its third quarter earnings on October 21. Analysts project the wireless player’s earnings to rise to $0.92 a share from $0.77 a share reported a year before, delighting its investors. The New York headquartered company is the top U.S. national carrier on the basis of subscriber base, offering communication services in the U.S. Fellow rival AT&T (T, Financial) is scheduled to release its earnings the next day of Verizon, i.e., October 22.
What are the expectations that investors can draw from the current quarter earnings release? Can the results make Verizon’s share going north of its current price?
Diving into the key metric – Earnings
In the past three out of four quarters, Verizon has pleasantly surprised its investors with earnings going north of expectations. In the second quarter of this fiscal year, earnings came in at 1.11% higher than analyst expectation. What remains to be seen is if the company will be able to maintain this positive surprise element this quarter too.
While the earnings estimate of $0.92 a share looks quite good when compared with last year, Forbes says that it is down from the consensus estimate of $0.93 a share made initially. However, this is reasonably ahead of AT&T’s earnings estimate of $0.64 a share, a plunge of 3% from a year ago comparable period. For the entire fiscal year, analysts predict the Big Red to register $3.54 in earnings.
Top line to keep going steady
As far as the top line is concerned, analyst estimate it to hover around $31.58 billion for the quarter, registering a rise of 4% over last year same period when the company recorded $30.28 billion in revenue. For the full year, analysts estimate the mobile provider to book a revenue of about $126.08 billion. Revenue growth should be aided by the company’s strong penetration in wireless and wireline services.
Also, Verizon has been able to evolve faster than any of its fellow players in adapting to the changing requirements as data usage gets heavier. The company boasts of an unparalleled 4G LTE network coverage that gives it an edge over competitors including AT&T, Sprint (S, Financial) and T-Mobile (TMUS, Financial). Its efforts in developing the network infrastructure to cater to its subscribers robust data demand, expanding the FiOS network and solid enterprise strategic services has helped it to attract more and more subscribers opting for its services. Verizon stays pretty active in areas including cloud computing, global IP, security and managed services.
However, there are a few issues that shall slightly mellow down the positive impact. The latest version of Apple’s (AAPL, Financial) flagship product, the iPhone 6 and iPhone 6 Plus, went on sale in the third quarter. While this looks like a positive trigger pulling up contract subscribers and revenue, it has a negative impact as well. While carriers buy the iPhone at full price, they have to provide subsidies to their customers to lure them into a two-year contract. This is where Verizon’s bottom line gets hit. The higher the sales, the greater the subsidy, and this trickles down to the company’s bottom line.
In addition to this, other factors that could impact results in the long run include erratic returns from investment, proposals of spectrum acquisition facing roadblocks, and intensifying competition from Sprint and T-Mobile, in particular.
Parting thoughts
Considering all the above factors, around 80% of the analyst consider that its good time to invest in the telecom giant. Since the company has a strong free cash flow, funding its capital spending on building network infrastructure and developing other essentials key to its sustained development in the future shouldn’t be a problem. Increased revenue from postpaid additions, expansion in margins, and top line growth should make the quarter delight investors.
