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Verizon Communications Inc.’s Friday morning earnings report comes as the company is getting more aggressive in its attempts to bring in new customers.
The company announced Tuesday that it would be giving a year’s worth of free access to Walt Disney Co.’s DIS, -0.96% new Disney+ subscription streaming service to all unlimited wireless customers as well as new Fios and 5G Home customers.
“High-quality content bundling should help drive gross adds and lower churn while encouraging migration to higher-priced unlimited plans,” UBS analyst John Hodulik wrote in a recent note to clients. “We see this move as the latest of Verizon’s recent moves focusing on market share gains.”
Though the Disney+ announcement wasn’t a factor in Verizon’s VZ, +0.18% third quarter, which is the subject of Friday’s earnings report, analysts expect that other efforts to jolt subscriber numbers will be reflected in the upcoming report. The wireless industry has become increasingly promotional, and Cowen & Co. analyst Colby Synesael is calling for 359,000 postpaid phone net additions, second only to T-Mobile US Inc. TMUS, -0.38% and up from 295,000 a year ago.
Here’s what to expect from Verizon’s report:
What to expect
Earnings: Analysts surveyed by FactSet project $1.24 in adjusted earnings per share for Verizon, up slightly from $1.22 in the year-earlier quarter. According to Estimize, which crowdsources projections from hedge funds, academics and others, the average estimate calls for $1.25.
Revenue: The FactSet consensus models $32.7 billion in quarterly revenue for Verizon, while the Estimize consensus calls for $32.8 billion. A year prior, Verizon posted $32.6 billion in revenue for its third quarter.
Stock movement: Verizon’s stock has gained following five of the company’s past 10 earnings reports. It’s up 8.3% so far this year, as the Dow Jones Industrial Average DJIA, +0.17% has risen 15%. Of the 26 analysts tracked by FactSet who cover Verizon, nine have buy ratings and the other 17 have hold ratings. The average price target listed is $61.33, less than 1% above recent levels.
What else to watch for
Verizon’s results are expected to provide some indication of initial demand for Apple Inc.’s AAPL, +1.34% iPhone 11 family that launched toward the end of the third quarter. Wells Fargo’s Jennifer Fritzsche is expecting “solid postpaid phone volumes” in part due to “gross adds and upgrades” for the new Apple devices, as well as due to promotional activity in August that gave more choices and line discounts to those who got unlimited plans.
Though Fritzsche is looking for higher volumes, she also thinks there could be some dilution in average revenue per user as a result of some trade-downs to cheaper unlimited pricing levels. “Over time, the price plans should incentivize more of the ~50% of customers on metered plans to upgrade to unlimited,” wrote Fritzsche, who rates the stock at outperform with a $65 target price.
SunTrust Robinson Humphrey’s Greg Miller believes that Verizon’s recent promotions were meant to boost the company’s base of unlimited subscribers ahead of the company’s 5G launch. Verizon’s progress with 5G may be in focus during the company’s conference call amid some questions on Wall Street about its readiness for that transition, but Miller has confidence in the carrier’s positioning.
“Despite the fact that AT&T T, -1.13% is adding as much as 50% more wireless capacity in many markets under its ‘one touch’ program, we continue to believe that Verizon remains well-positioned to transition to a 5G platform generating similar share gains relative to the past,” wrote Miller, who has a buy rating and $68 target on the stock. “Even though fixed 5G service roll-outs are likely to happen later that initially expected, due to the equipment unavailability and continued technology hurdles, we believe the technology will prove to be sound and become a competitive differentiator for the entire industry.”
Verizon has been the weakest performer of the four major U.S. carriers so far in 2019, but Cowen’s Synesael sees room for the company to start gaining some traction again. “Considering how much the stock has underperformed the overall market year-to-date (up 8.1% versus the S&P 500 SPX, +0.28% up 19.9%), we believe earnings could serve as a momentum catalyst into year end (despite some investors already viewing this as a crowded trade),” he wrote.
Synesael rates the stock at market perform with a $60 target.
