ii view: Verizon cuts earnings estimates

Under Covid-19, most of its mobile outlets are now shut, but should investors hang up? 

First-quarter results

• Revenue down 1.6% to $31.6 billion (£25.5 billion)
• Adjusted earnings per share (EPS) up 5% to $1.26
• Previously announced quarterly dividend of 61.5 US cents per share

Full-year 2020 guidance:

• Now expects EPS growth of -2% to +2%, down from +2% to +4%
• Withdrawing revenue estimates

Chief executive Hans Vestberg said:

"Verizon began 2020 with strong operational performance. In an unprecedented time, Verizon took decisive and balanced actions that will serve our stakeholders in the long term, including protecting our employees, maintaining our network quality and reliability, serving our customers, and supporting our communities.”

ii round-up:

US telecoms giant Verizon  Communications (NYSE:VZ) today cut its full-year earnings guidance and withdrew revenue estimates as Covid-19 shut the majority of its mobile phone stores. 

Despite gaining business customers, losses for retail pay monthly customers meant it suffered an overall mobile loss of 68,000 subscribers. Total revenues for the quarter fell by 1.6% to $31.6 billion (£25.5 billion).

Verizon shares fell marginally in opening US stock market trading. Its shares are down just over 5% for the year-to-date, far better than the 24% suffered by arch-rival AT&T (NYSE:T).

Earnings per share estimates for 2020 were reduced, given management’s expectations for rising missed payments and bad debts under Covid-19.

As is customary in the US, Verizon had already announced details of its dividend payment. It will pay 61.5 cents per share, a figure unchanged on the last two quarters, although it is up 2% on the first quarter of 2019.

Just recently, Verizon agreed to buy Zoom Video Communications (NASDAQ:ZM) rival BlueJeans Network for less than $500 million.  

ii view:

Competition across the telecoms sector and with its arch-rival AT&T remains intense. The group’s previous move to offer a free one-year subscription to Disney's (NYSE:DIS) streaming service looks to compete with AT&T’s tie-up with HBO. More broadly, Verizon is focused on plans to build the group’s 5G capabilities and pay down debt. Covid-19 now adds operational challenge to its intensive competitive battle.  

For investors, the historic and forward dividend yield of around 4% (not guaranteed) and covered twice by earnings, has been a key attraction. Social distancing in a Covid world also adds to the importance of technology to stay in touch. But, more generally, network operators have arguably become commoditized, and price is now a key consumer consideration. Tie-ups with content providers add a further cost. Verizon stock has performed well in recent years, although, given current uncertainties, investors may wish to observe for now. 

Positives

• Verizon is rolling out its 5G service 
• Pursuing a target of $10 billion in cumulative cash savings by 2021

Negatives:

• Sector competition is intense
• Around 70% of its stores are currently shut

The average rating of stock market analysts:

Strong hold