Verizon Earnings Preview: Sales Catalyst Lacking

Verizon Communications [[VZ]] is scheduled to report their fourth quarter 2009 results before the market opens on Tuesday, January 26, 2010. Based on our analysis, we at are expecting Verizon to report slightly better than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $27.37 billion and EPS of $.57. This would represent an 11% increase in revenues from last year’s $24.65 billion in the same period. The current analyst consensus estimates calls for revenues of $27.32 billion and EPS of $.56.


Earnings Analysis

Despite strong holiday sales of smartphones, Verizon’s profitability continues to be limited by their costly advertising war with AT&T [[T]]. Rather than focusing on creating shareholder value, the management team seems completely focused on their competition. Their languishing stock price speaks to investor apathy despite the high dividend yield this telecom cash cow offers.    


Wall Street is expecting less than 1% sales growth from Verizon in 2010 and earnings to remain flat. Given the lack of any sales catalyst it’s hard to see this stock going much higher in coming quarters. Fortunately for income investors, Verizon’s strong business model should offer significant downside protection leading the stock to trade like a bond.


Stock Performance

Verizon stock fell 2% in 2009 while the Dow Jones industrial average jumped 19%. Since the beginning of the year, VZ has already dropped over 7% and has posted the second worst performance of any Dow stock component (slightly edging AT&T’s 8% decline).



Verizon’s stock is now trading at 12.6x consensus 2010 EPS estimates. This is a discount to the relative valuations of their peer group. We still like Verizon’s 6.2% dividend yield and strong cash flow, but see limited upside for their stock in the near term.


Recommendation: Hold with a $30 price target


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