Verizon Earnings Preview: All About the Data

Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Verizon (NYSE: VZ) is one of the most popular stocks among all investors, loved for its great dividend yield (4.8% currently) as well as its exposure to technology.  Along with AT&T (NYSE: T), Verizon is a dominant player in the U.S. wireless market.  With the company set to report earnings on Jan. 22, there are a few things that the market will be looking for to ensure them that Verizon is still growing and headed in the right direction.

 

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Verizon provides wireline services to 23.3 million customers (down 7% from last year) and has over 94 million wireless subscribers through its joint venture with Vodafone.  One of the main sources of earnings growth is the average revenue per user the company receives, currently at $56, and growing at a 3.7% annual rate.  However, wireless data revenue is growing at a much nicer 15% annual rate, and is currently 44% of service revenues, leaving it a lot of room to grow, particularly with the growing smartphone sales.  New editions of Google’s Android phones and Apple’s (NASDAQ: AAPL) iPhones are the major drivers of smartphone growth, and as technology evolves, these devices should be able to handle more and more data, which will translate into growing data revenues.  

Speaking of Apple, it would be beneficial for Verizon investors to pay attention to their earnings report next week as well, as there are many conflicting reports about the iPhone 5 sales numbers.  I’ve seen reports predicting iPhone shipments last quarter ranging from 56 million to less than half of that amount.  The sales figures reported by Apple, whatever they may be, will impact the aforementioned data revenues one way or another.  Also, with reports of a lower-cost iPhone model being planned, this could open the mobile data market to a whole new range of consumers.  In short, smartphones and the services they demand are the future of Verizon’s revenue growth, so all smartphone sales numbers deserve to be paid attention to. 

As for the high dividend yield I mentioned earlier, Verizon has a nice history of dividend increases (see below), and I wouldn’t be surprised if they raised it again.  Verizon’s dividend has steadily increased from $1.54 in 2004 to $2.06 today, so I would expect them to raise the dividend by around 10 cents, to around $2.16 per year.  

In terms of valuation, Verizon currently trades at 17.5 times 2012’s consensus earnings of $2.42 per share, which are expected to grow nicely to $2.84 and $3.18 in 2013 and 2014, respectively.  This means that analysts expect earnings growth of 31.4% over the next two years, a lofty goal that would certainly justify the relatively high P/E ratio.  

When earnings are reported, more important than the numbers themselves will be the company’s outlook for the future.  Pay particular attention to anything the company says about data revenue and how many of their customers upgraded to a smartphone since their last report.  However, in regards to the earnings numbers, any downside surprises could provide a nice opportunity to buy one of the best dividend stocks in the market at a discount.


KWMatt82 owns shares of Apple and Verizon Communications. The Motley Fool recommends Apple, Google, and Vodafone. The Motley Fool owns shares of Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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