Verizon Communications Earnings Preview: Second Quarter 2009

Verizon Communications [[VZ]] is scheduled to report their second quarter 2009 results before the market opens on Monday, July 27. Based on our analysis, we at EarningsPreviews.com are expecting VZ to report better than expected results that exceed Wall Street’s consensus expectations.

 

Analyst Expectations

We are forecasting revenues of $27.03 billion and EPS of $.64. This would represent a 12% increase in revenues from last year’s $24.12 billion in the same period. The current analyst consensus estimates calls for revenues of $26.87 billion and EPS of $0.63.

 

The second quarter earnings season has started out with the first twelve Dow stocks all reporting better than expected earnings results. We expect that Verizon will also follow that pattern and beat analyst expectations. While Verizon may have felt some pressure from the launch of Apple’s [[AAPL]] new iPhone and the Palm [[PALM]] Pre, we expect that the launch of both of those phones occurred late enough in the quarter to have had a minimal impact.

 

While Verizon offers investors a high dividend yield, a strong business model and a reasonable valuation, it currently lacks a catalyst to push the stock higher. Despite the rally in the market this year that has pushed the Nasdaq up 21%, Verizon’s shares have continued to be stuck in neutral. As stated in our last Verizon preview, it is doubtful that the stock will see much appreciation in 2009.

 

Share Performance

Since the beginning of the year, Verizon’s shares are down almost 11%. In 2008, VZ’s shares only fell 22% and managed to outperformed the 34% decline in the Dow Jones industrial average.

 

Valuation

Shares are now trading at 11x consensus 2010 EPS estimates. This is a slight premium to the relative valuations of their peer group. While Verizon’s shares are currently trading close to our price target, dividend investors should be attracted to their 6.2% high dividend yield which we expect to remain quite safe.

 

Recommendation: Hold with a $30 price target.

 

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