Analysts will have a lot to talk about when Verizon Communications Inc. (VZ) delivers quarterly earnings, but there’s little reason to expect labor woes or potential acquisitions will hurt Verizon stock.
The biggest news with Verizon these days is, of course, the strike. Nearly 40,000 workers walked off the job last week, but the market hasn’t been particularly bothered by the move.
From an investor’s perspective, the Verizon strike is temporary issue — and it’s better than giving into demands that would increase VZ’s costs. Verizon stock traded down ahead of the strike, which appears to have sufficiently discounted the labor action in the share price.
Heck, VZ stock is actually up a little bit since the strike commenced.
Still, Wall Street will be keen to get any kind of update from management. A strike represents uncertainty and the market hates uncertainty.
Another topic of discussion could be the telecommunication company’s intentions in regard to the core assets of Yahoo! Inc. (YHOO). Bids were due Monday and Verizon reportedly has the inside track to acquire the web property.
The size of any deal is less important than the strategy attached to it. Verizon’s deal to acquire AOL last summer was valued at only $4.4 billion. That’s not a big figure for a telecom giant. After all, it paid $130 billion to buy out Vodafone Group Plc (ADR)‘s (VOD) stake in Verizon Wireless.
Verizon Stock Gets the Benefit of the Doubt
Telco’s have to be creative to find growth.
Verizon stock has a long-term growth forecast of just 4.2% per annum as its traditional money makers slow down. The wireless market is saturated, so the business is driven more by stealing subscribers from competitors. Wireline is in decline (and at the heart of the current labor dispute). And broadband isn’t what it used to be. VZ actually stopped building out its FiOS network.
And so Verizon is investing in mobile and video. The plan is to leverage VZ’s vast network to deliver mobile and video advertising. This is where AOL and potentially Yahoo come in. Whatever their faults as web properties, both companies have desirable ad platforms.
Investors should welcome VZ bringing YHOO into the fold, if it does indeed happen. After all, it’s not like the status quo is doing much for profits and sales.
When VZ reports quarterly results Thursday, analysts on average will be expecting earnings of $1.06 a share. That’s less than a 4% increase over last year’s earnings per share of $1.02.
Revenue is stuck too: The Street expects the top line to expand by just 1.6% year-over-year to $32.49 billion.
But, as noted above, the income statement is likely to be less interesting than all the other things Verizon has going on. Don’t be surprised if the market takes any updates in stride.
Shares are up almost 13% so far this year vs. a gain of 2.7% for the broader market. That kind of market-beating performance suggests management will get any benefit of the doubt, and Verizon stock will see more upside ahead.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
