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What’s in Store for Verizon (VZ) this Earnings Season?


U.S. telecom behemoth Verizon Communications Inc. VZ is slated to report third-quarter 2016 results, before the opening bell on Oct 20.

Last quarter, Verizon posted an earnings surprise of 1.08%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 1.05%. Let’s see how things are shaping up for this announcement.

Factors at Play

Verizon is systematically diversifying its businesses into related fields. The company is set to launch super-fast 5G wireless network in 2017. With 5G network, Verizon will target the vast market opportunity of Internet of Things (IoT). In relation to IoT, the company recently inked a deal to acquire Sensity Systems Inc., a small IoT start-up based in Sunnyvale, CA. Verizon alsoentered into a IoT collaboration with Qualcomm Technologies, Inc., a subsidiary of Qualcomm Inc. QCOM. This partnership will see Verizon's IoT platform, ThingSpace, get integrated into Qualcomm Technologies' MDM9206 Category M LTE modem.

Verizon’s Fios By Verizon signed a premium-TV agreement with Walt Disney Co. DIS’s cloud-based digital movie service platform, Disney Movies Anywhere.

Acquisitions of AOL and core assets of Yahoo should rake in more profits for the company. According to a recent report by technology news website Recode, Verizon may be in talks to purchase the new video-online subscription service, Vessel to expand its mobile video segment. However, nothing concrete about the deal has been disclosed yet. The company is also forging ahead with its drone application plans.

On the other hand, the U.S. wireless market is near saturation and is witnessing intensified pricing competition. These may act as headwinds for the company in the near term. Also, the company’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.

Earnings Whispers

Our proven model does not conclusively show that Verizonis likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both 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 -1.01%. This is because the Most Accurate estimate stands at 98 cents while the Zacks Consensus Estimate is pegged higher at 99 cents.

Zacks Rank: Verizon has a Zacks Rank #3 (Hold) 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 stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

VERIZON COMM Price and EPS Surprise

VERIZON COMM Price and EPS Surprise | VERIZON COMM Quote

A Stock to Consider

Here is a company that has the right combination of elements to post an earnings beat this quarter.

Windstream Holdings Inc. WIN, with an earnings ESP of +2.56% and a Zacks Rank #1. The company’s earnings surpassed the Zacks Consensus Estimate in all of the previous four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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