This year, Verizon Communications (NYSE:VZ) has been a tale of two halves. In the first half, Verizon stock couldn’t gain any traction, dropping down 3%. But in the second, things started to come alive for the telecom firm. After a solid showing for its third-quarter 2018 earnings report, shares are now up almost 13% year-to-date.
Interestingly, VZ stock is nearly the exact opposite of the broader markets. For instance, the benchmark exchange-traded fund SPDR S&P 500 ETF (NYSEARCA:SPY) was up 2% in the first half, but it only gained an additional 2% in the second due to the severe selloff. At a time when positive returns are a rarity, Verizon stands out for all the right reasons.
On a technical basis, Verizon stock appears very convincing. After largely trading sideways since mid-August, VZ broke the deadlock. This is a new multi-year high for the telecom giant, making good on its momentum earlier this year. For the month of January, shares gained nearly 3% before succumbing to pressure shortly following a Verizon earnings miss in Q4 2017.
More significantly, the only other time that VZ stock traded higher was during the tech bubble’s peak. Frankly, I wouldn’t be surprised if we see fresh all-time highs before the year is over. The company is well within striking distance.
Adding to the enthusiasm is the contrast between Verizon stock and rival AT&T (NYSE:T). While T shares have also flexed their muscles — they’re up nearly 6% since the start of July — they can’t touch VZ. That draws attention among investors who are undoubtedly seeking protection from the shaky markets.
Plus, the company won a major PR battle when it became the first to launch commercial 5G networks. The Verizon earnings beat is, therefore, icing on a very delectable cake.
Resounding Earnings Performance Bolsters the Case for Verizon Stock
Prior to the financial disclosure, covering analysts had a consensus target for Verizon earnings per share at $1.19. Individual estimates ranged from $1.16 to $1.23. The actuals came in just a penny underneath the most optimistic forecast at $1.22. Notably, this was a huge jump from the year-ago quarter when Verizon delivered an EPS of 98 cents. This figure only met Wall Street’s consensus. Currently, EPS is up over 24% from the same time last year.
On the revenue side, analysts expected the telco giant to drive in $32.5 billion. Individual forecasts ranged from $31.9 billion to $32.9 billion. Actuals came in slightly higher than the consensus at $32.6 billion. In Q3 2017, Verizon rang up $31.7 billion, which translates to a nearly 3% lift this time around.
The most notable aspect of the Verizon earnings report is the wireless-subscription count. In Q3, the company added 295,000 postpaid phone customers, which scorched the consensus forecast calling for 168,000 customers. In last year’s Q3, the telco added 274,000 subs. Naturally, the markets responded enthusiastically to the news, with Verizon stock closing up 4%.
Another tailwind boosting VZ stock longer-term is management’s focus on 5G. In August, Hans Vestberg took over as Verizon’s CEO. Vestberg once headed Ericsson, and has the street cred to tackle the 5G rollout.
As I mentioned previously, Verizon struck first, experimenting with 5G broadband services to select markets. Once the infrastructure — namely, the smartphones’ capacity to accept 5G — is completed, VZ will find itself in an enviable position. This next-generation technology has the potential to overturn and revolutionize multiple industries. Such synergies should lift Verizon stock in the years ahead.
It also helps that AT&T invested heavily in Time Warner, and is currently number two in the 5G battle.
VZ Stock Still Has Some Risks
Despite the strong beat in Q3, the Verizon earnings report wasn’t perfect. Therefore, VZ stock still has some risks. For starters, Verizon benefitted from a lull in the competition. Once T-Mobile (NASDAQ:TMUS) breaks into the suburban and rural markets, VZ could face revenue pressures.
But the biggest detractor was undoubtedly Oath, Verizon’s internet-media division. This business unit’s two main stars are Yahoo and AOL, which tells you all you need to know. Against the prior-year Q3, Oath revenue at $1.8 billion dropped nearly 7%.
The problem, of course, is that none of Verizon’s internet and media brands have truly resonated with users. They’re depending on legacy names — and really old ones at that — to gin up interest among younger millennials and the Generation-Z crowd. That’s not a great recipe for success, and Q3 proved that.
Still, I’m optimistic about Verizon stock. It’s in a great position in the emerging 5G network. Despite potential competition, VZ resoundingly beat expectations for wireless subs. Plus, you can’t ignore its dividend yield, especially at the present juncture.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.