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What's in the Cards for Verizon (VZ) this Earnings Season?

U.S. telecom behemoth Verizon Communications Inc. VZ is slated to report second-quarter 2017 results, before the opening bell on Jul 27.

Last quarter, Verizon witnessed a negative earnings surprise of 3.06%. The company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average miss of 0.83%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Spectrum crunch is a major issue in the domestic telecom industry and Verizon continues to operate in a saturated and competitive wireless market. Expenses related to the company’s promotional plans and lucrative discounts to lure more customers might impact the wireless segment’s EBITDA and EBITDA service margins in the to-be-reported quarter.

The company’s wireline division continues to suffer from persistent losses in access lines owing to competitive threats from voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data, video) offerings from cable companies. We believe that these factors have led to the company’s below-par price performance. Over the past three months, shares of Verizon have lost 5.29% compared with the industry’s decline of 7.04%.

On the flip side, we appreciate Verizon’s efforts to reward its shareholders with a quarterly dividend of 57.75 cents per outstanding share, payable on Aug 1, to shareholders of record at the closure of business on Jul 10.

Verizon’s venture into the online TV streaming service is poised to give tough competition to its closest rival AT&T Inc.’s T online TV streaming service, DirecTV Now. Verizon’s 5G wireless network trials in 11 U.S. cities with plans to deploy fixed wireless version in 2018 and the deal to buy Straight Path Communications, complements its 5G wireless expansion strategies. We expect that these announcements will aid Verizon to gain subscribers in the to-be-reported quarter.

The acquisition of the core assets of Yahoo will boost Verizon’s digital media suite. The deal will create a major player in the mobile media and advertising space. Verizon’s unlimited data plans have already heated up the wireless industry. Moreover, the company’s strong foothold in the Internet of Things (IoT) and fiber space bode well.

Verizon is also gearing up to work on a number of strategic initiatives involving networking and cloud services with International Business Machines Corporation IBM.

Earnings Whispers

Our proven model does not conclusively show that Verizon is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Verizon has an Earnings ESP of -1.04%. This is because the Most Accurate estimate stands at 95 cents while the Zacks Consensus Estimate is pegged at 96 cents. You can uncover the best stocks to buy or sell before they’re reported with our">Earnings ESP Filter.

Zacks Rank: Verizon has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s negative ESP makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Key Pick

MSCI Inc. MSCI, from the broader Computer and Technology sector, has the right combination of elements to post an earnings beat in its second-quarter 2017 results on Aug 3. The company has an Earnings ESP of +1.11% and a Zacks Rank #2. You can see _1link">the complete list of today’s Zacks #1 Rank stocks here.

Its earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters, with an average beat of 6.32%.

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