Will Verizon Manage To Surprise Markets With An Earnings Beat For 2019?

by Trefis Team
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Verizon Communications Inc. (NYSE: VZ) is slated to release its Q4 and full-year 2019 results on January 30, 2020. Trefis details expectations from the company in an interactive dashboard, parts of which are highlighted below. We believe that Verizon’s revenues and earnings are expected to beat the market expectations, resulting in the stock price rising post the announcement. Trefis expects Verizon to report revenues of $131.9 billion (vs. consensus estimate of $131.8 billion), which would be 0.8% higher than 2018, primarily due to higher revenues from the postpaid sales and increasing share of the wireless division in total revenues. Adjusted EPS is expected to come in at $4.83 (vs. consensus estimate of $4.82), which would be 2.5% higher than $4.71 reported in 2018, due to healthy revenue growth and expenses increasing at a lower rate, thus pushing net income margin higher. We believe that marginally stronger-than-expected revenue and earnings for 2019 will likely result in Verizon’s stock price rising once earnings are announced. In fact, our forecast indicates that Verizon’s Valuation is $62 a share, which is roughly 2.6% above its current price of $60.

A] Revenue To Marginally Beat Consensus

  • Total revenues have increased at a CAGR of 1.9% over the previous two reported years, with the company adding about $4.9 billion to its revenue base between 2016 and 2018.
  • Trefis estimates Verizon’s revenues to be $131.9 billion, marking a y-o-y growth of 0.8%.
  • Higher revenue is mainly to be driven by the rise in wireless revenues on the back of increased postpaid revenues, partially offset by the wireline revenues expected to remain flat in 2019.
  • We expect Verizon’s revenue growth rate to improve marginally from 0.8% projected in 2019 to about 1% in 2020, mainly due to higher postpaid revenue and rising share of the wireless segment sales, coupled with a pick up in 5G services.

In a separate interactive dashboard – Verizon Revenues: How Does Verizon Make Money? – we detail the trend in Verizon’s revenues and how each segment is performing, along with the outlook for 2020 and comparison with Sprint, AT&T, and T-Mobile.

B] EPS To Marginally Beat Consensus

  • Verizon’s 2019 earnings per share (EPS) is expected to be $4.83 per Trefis analysis, slightly more than the consensus estimate of $4.82 per share.
  • An increase in revenues as detailed above coupled with slower growth in expense level, partially offset by increased share count, will drive EPS growth.
  • As we forecast Verizon’s Revenues to grow at a faster rate than Expenses in 2019 (2.5% vs. 0.4%), this will result in a slight increase in Verizon’s Net Income Margin figure from 14.9% in 2018 to 15.2% in 2019.
  • For 2020, we forecast a modest growth in revenue and expenses, though the rise in revenue is expected to remain faster than expenses with the pick-up in 5G services. This is expected to drive adjusted net income margin slightly higher to about 15.5%.

C] Stock Price Estimate Higher Than Market Price

  • A trailing P/E multiple of 12.8x looks appropriate for Verizon’s stock, similar to the current implied P/E multiple of 12.5x
  • Trefis’ forecast for Verizon’s 2019 revenue, earnings and P/E multiple is marginally higher than market expectations, working out to a fair value if $62 for Verizon’s stock as opposed to the current market price of around $60.

Additionally, you can input your estimates for Verizon’s key metrics in our interactive dashboard for Verizon’s pre-earnings, and see how that will affect the company’s stock price.

 

See all Trefis Price Estimates and Download Trefis Data here

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