Verizon Stock Before Q2 Earnings: To Buy or Not to Buy?

Verizon Communications Inc. VZ is scheduled to report second-quarter 2024 earnings on Jul 22. The Zacks Consensus Estimate for second-quarter sales and earnings is pegged at $33.07 billion and $1.15 per share, respectively. Earnings estimates for VZ have declined marginally from $4.59 per share to $4.58 per share for 2024 and from $4.72 per share to $4.71 per share for 2025 over the past 30 days.
VZ Estimate Trend

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Earnings Surprise History

The communication services provider has had a modest earnings surprise history in the trailing four quarters, exceeding earnings expectations on each occasion. It delivered a four-quarter earnings surprise of 2.83%, on average. In the last reported quarter, the company delivered an earnings surprise of 2.68%.

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Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Verizon for the second quarter. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat. This is not the case here.

Verizon currently has an ESP of -0.06% with a Zacks Rank #3.

Factors Shaping Upcoming Results

Verizon is offering various mix-and-match pricing in wireless and home broadband plans that have historically led to increased adoption of 5G devices and premium unlimited plans. In addition to various bundle plans for varied streaming services, it offers customers greater control and flexibility over their preferred content selections, allowing them to pay only for what they want. This is likely to have translated into healthy customer additions and higher revenues from the Consumer segment.

The Zacks Consensus Estimate for revenues from the Consumer segment is pegged at $25.01 billion, while our model projects revenues of $24.95 billion.

During the reported quarter, Verizon deployed innovative, human-assisted GenAI applications that streamline processes and ensure positive customer engagements. These cutting-edge tools ease the business processes with Verizon and reduce the cognitive load on store and customer service employees. Designed to work alongside human representatives, these AI tools act as personal guides, leading customers to the best solutions and offers available. These are likely to have translated into incremental revenues in the Business segment.

The Zacks Consensus Estimate for revenues from the Business segment is pegged at $7.44 billion, while our model projects revenues of $7.49 billion.

However, adverse foreign currency translations, infrastructure investments and high operating costs for 5G deployments are likely to have led to soft margins in the quarter. Moreover, the promotional offers and lucrative discounts are expected to have weighed on margins. In addition, the company's wireline division is struggling with persistent losses in access lines owing to competitive pressure from the voice-over-Internet protocol (VoIP) service providers and aggressive triple-play (voice, data and video) offerings by cable companies.

Verizon also recorded high capital expenditures for the launch and continued build-out of its 5G Ultra-Wideband network, deployment of significant fiber assets across the country and Intelligent Edge Network architecture upgrades.

Price Performance

Over the past year, VZ has gained 28.4% compared with the industry's growth of 32.5%. It has also underperformed its peers like AT&T Inc. T and T-Mobile US Inc. TMUS over this period.

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Key Valuation Metric

From a valuation standpoint, Verizon appears attractive relative to the industry and is trading below its mean. Going by the price/earnings ratio, the company shares currently trade at 8.92 forward earnings, lower than 11.11 for the industry and the stock's mean of 9.75.

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Investment Considerations

With one of the most efficient wireless networks in the United States, Verizon continues to deploy the latest 4G LTE Advanced technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investment. Verizon has been aggressively forging ahead to expand its fiber optics networks to support 4G LTE and 5G wireless standards as well as wireline connections.

However, high capital expenditures due to the continued expansion of 5G mmWave in new and existing markets, the densification of the 4G LTE wireless network and the deployment of the fiber infrastructure have eroded margins. An ongoing shift from traditional linear video to over-the-top offerings, along with a competitive and almost saturated U.S. wireless market, is further likely to weigh on the company's revenues in the future.

End Note

With a Zacks Rank #3, Verizon appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. It appears that the recent initiatives have mostly fallen flat as it plays a catch-up game with its rivals. With declining earnings estimates, the stock is witnessing a negative investor perception. Consequently, it might not be a prudent investment decision to bet on the stock at the moment.

However, a single quarter's results are not so important for long-term stakeholders and investors already owning the stock could stay put. In addition, an attractive valuation and focus on the deployment of a cloud-native, container-based, virtualized architecture for higher flexibility, scalability and cost efficiency across its network will likely reap long-term benefits. These, in turn, offer some enticing reasons for continuing to invest in the stock over a long-term horizon.

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