Verizon (VZ) to Report Second-Quarter Earnings on July 22: Will It Deliver Another Beat?
Verizon Communications Inc. (VZ) is set to release its second-quarter 2024 earnings report on July 22nd. Analysts are expecting the telecommunications giant to report sales of $33.07 billion and earnings of $1.15 per share, reflecting a modest decline in earnings estimates for 2024 and 2025. While Verizon has a history of exceeding earnings expectations, exceeding earnings expectations this time may prove difficult.
Key Takeaways:
- Earnings Expectations: Analysts are expecting $33.07 billion in sales and $1.15 per share in earnings for the second quarter, reflecting a slight dip in estimated earnings over the last 30 days.
- Earnings Surprise History: Verizon has a history of exceeding earnings expectations, with an average four-quarter earnings surprise of 2.83%.
- Factors Shaping Results: Verizon’s strategic initiatives, including mix-and-match pricing plans, innovative GenAI applications, and fiber network expansion, are expected to drive growth in revenue from both the Consumer and Business segments. However, headwinds include foreign currency translation, infrastructure investments, high operating costs for 5G deployments, and promotional offers, which could impact margins.
- Valuation: Currently trading at 8.92 forward earnings, Verizon appears attractively valued compared to the industry and its historical average.
- Future Prospects: While Verizon’s continued investment in its network and technology is promising, the highly competitive US wireless market and ongoing shift away from traditional linear video could present challenges for revenue growth.
Examining the Factors Shaping Verizon’s Q2 Performance
Consumer Segment Growth and Bundled Offerings
Verizon’s focus on offering flexible and customized pricing plans has led to increased adoption of 5G devices and premium unlimited plans. The company’s bundled offerings that include streaming services provide value to customers and drive revenue growth. Analysts anticipate revenue from the Consumer segment to reach $25.01 billion, slightly higher than the projected $24.95 billion.
GenAI Streamlining and Business Segment Outlook
Verizon’s implementation of human-assisted GenAI applications is expected to boost the Business segment. These applications simplify business processes and reduce the burden on employees, leading to increased efficiency. Analysts expect the Business segment to generate $7.44 billion in revenue, while our model projects $7.49 billion.
Challenges and Headwinds
Despite the anticipated growth, Verizon faces several challenges that may affect its profitability.
- High Operating Costs: The company’s ongoing investments in 5G deployment and fiber network expansion are expected to put pressure on margins.
- Competitive Pressure: The saturated US wireless market and the shift toward over-the-top streaming options continue to pose challenges for Verizon’s wireline division.
- Promotional Offers and Discounts: Verizon’s aggressive promotions and discounts could further impact profitability.
Valuation and Future Outlook
Verizon’s forward price/earnings ratio of 8.92 is below the industry average and its own historical average, indicating its current undervaluation. The company’s commitment to 5G network expansion, fiber optic networks, and cloud-based architecture holds promise for long-term growth.
However, the highly competitive market and challenges to its wireline business present risks for future revenue growth. The stock’s declining earnings estimates reflect investor concerns about the company’s ability to deliver consistent growth.
Conclusion:
Verizon’s Q2 performance will depend on the balance of its growth initiatives and the challenges it faces. While the company remains a dominant player in the US telecom industry with a strong network and investment in future technologies, it might be prudent for new investors to adopt a cautious approach. Existing investors with a long-term horizon might consider holding the stock, given its attractive valuation and focus on technological advancement.
