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James Li
James Li
Articles (204)  | Author's Website |

Verizon Builds Strong Financial Outlook Through Fiber Acquisitions

Company expects wireless revenues to improve for full-year 2017

April 20, 2017 | About:

Verizon Communications Inc. (NYSE:VZ), one of the world’s leading telecom companies, reported lower revenues and earnings per share during first-quarter 2017 compared to the prior-year quarter. Despite this, management still expects wireless service revenues to improve throughout 2017. Verizon expects to strengthen its financial outlook through several merger and acquisition deals with XO Communications, Corning Inc. (NYSE:GLW) and Yahoo! Inc. (NASDAQ:YHOO).

Brief summary of earnings report and earnings call

The New York telecom company reported $29.8 billion in consolidated revenue and 84 cents in earnings per diluted share during the quarter, underperforming prior-year quarter results by 7.3% and 20.75% respectively. The 20.75% decrease in earnings per share represents the percent change from first-quarter 2016 EPS of $1.06 to the reported first-quarter 2017 earnings.

Even though the company reported weak first-quarter 2017 earnings, CEO Lowell McAdam expects full-year 2017 consolidated revenues to remain consistent with full-year 2016 revenues. According to the earnings report, Verizon expects “improvement in wireless service revenue” for 2017. The launch of Verizon Unlimited resulted in high phone customer loyalty, with retail postpaid phone churn of under 0.90% for the eighth consecutive quarter. Such initiatives, according to the CEO, builds on Verizon’s “loyal customer base and third-party recognition [the company has] received for network leadership,” which lead to the potential for future growth and long-term shareholder value.

Company acquires fiber assets from two companies

According to the earnings report, Verizon acquired XO Communications’ fiber assets during the quarter to fortify its fiber networks. Management discussed the importance of fiber in its earnings call: as future networks will run on more fiber, Verizon must establish a strong fiber network to maintain competitive power. McAdam and Chief Financial Officer Matt Ellis described two ways to acquire the fiber: organically or inorganically. On April 18, Verizon took the latter approach by striking a three-year minimum purchase agreement with Corning. According to the agreement, Corning will provide Verizon “up to 20 million kilometers of optical fiber each year from 2018 through 2020, with a minimum purchase commitment of $1.05 billion.”

Stock price falls as company missed earnings guidance

Verizon’s stock price currently trades at $48.10 per share, about 1.72% lower than its previous close as the company missed is first-quarter earnings guidance.

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While the company has modest financial strength and profitability, Verizon’s operating margin and return on equity outperform over 88% of global telecom service companies.

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See also

As discussed in a previous article, Verizon announced a $4.83 billion acquisition of Yahoo’s core business on July 25, 2016. According to a March 14 CNBC report, the deal is expected to close in June for $4.48 billion after the target company disclosed two data breaches in 2016.

Disclosure: I do not have any positions in the stocks mentioned in this article.

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About the author:

James Li
I am an editorial assistant and researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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