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Verizon (VZ) Wireless & 5G Plans on Track: Hold the Stock?

On Apr 11, Zacks Investment Research upgraded wireless carrier Verizon Communications Inc. VZ to a Zacks Rank #3 (Hold).

Verizon enjoys a strong foothold in the wireless market and expects growth from higher penetration of devices and increasing rollout of 4G LTE services. Furthermore, the company is striving to acquire more spectrum licenses in order to support its data services. In the recently concluded AWS-3 auction, the company bought $10.4 billion worth of spectrums across several large markets in the U.S. Verizon is also taking part in the Federal Communications Commission (FCC) conducted broadcast incentive (spectrum with TV broadcasters) auction in 2016.

In Sep 2015, Verizon announced plans of starting field trials for its upcoming 5G wireless network in collaboration with its partners in 2016. Verizon also intends to test 5G technology in Waltham, MA and San Francisco, CA in the first phase. The company’s partners in its 5G projects are Alcatel-Lucent, Cisco Systems Inc. CSCO, Ericsson, QUALCOMM Incorporated QCOM, Nokia Corporation NOK and Samsung. Verizon stated that its 5G network will provide 50 times the throughput of the currently available standard 4G LTE network. Thus, the superfast 5G mobile networks will be essential for the management of the exponential growth in Internet-connected devices, popularly known as the Internet of Things (IoT). We expect the 5G technology to significantly boost the company’s top and bottom line.

Coming to the Wireline business, the company is committed toward improving long-term profit through product streamlining and process simplification as well as cost management. In the enterprise space, Verizon is aggressively promoting key platforms like cloud, security, machine-to-machine and video delivery services. Further, the company expects the enterprise business to contribute more to Wireline revenues.

However, Verizon has predicted that its earnings may be flat on a year-over-year basis in 2016 as it does not see enough variables for growth in the upcoming year. However, the company expects to return to growth in 2017.

Moreover, Verizon’s Wireline division is grappling with persistent losses in access lines owing to competitive pressure from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings by cable companies. These are weighing on the company’s revenues and margins. In order to make Wireline profitable, Verizon is making significant investments and is streamlining its cost structure as well. However, the investments are yet to garner returns.

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