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Verizon Communications has some big, expensive plans for the 5G era. The wireless giant’s latest results on Wednesday won’t shed much light on management’s ability to deliver on its strategy, but expect executives to continue talking up Verizon’s network and spectrum investments and their potential to boost growth in the future.
Verizon Communications (ticker: VZ) reports first-quarter results on Wednesday morning before the market opens. Wall Street analysts are forecasting modest earnings and revenue growth from the year-ago period, when the impacts of the Covid-19 pandemic were just beginning to be felt. New subscriber gains may be subdued given competitive promotions from rivals AT&T (T) and T-Mobile US (TMUS) in the quarter, and Verizon’s focus on increasing its average revenue per customer.
Verizon stock’s reaction to the report will likely depend on the degree that it can deliver on nudging subscribers to higher-priced plans without bleeding customers in a promotion-heavy market. The success of Verizon’s long-term 5G ambitions will be judged in future years.
On average, analysts surveyed by FactSet expect that Verizon lost about a net 40,000 wireless postpaid phone subscribers in the first quarter—that refers to customers who pay a recurring monthly bill, as opposed to prepaid customers, and is a closely watched metric for wireless companies. But the range of estimates is wide, from a net loss of 250,000 postpaid phone subscribers on the low end to a 325,000 net gain on the high end.
Sales are expected to rise by about 3% from a year ago, to $32.5 billion, while earnings per share are seen rising by 28%, to $1.28. Accounting for one-time costs and benefits, Verizon’s adjusted EPS are expected to tick up 2% year over year, to $1.29.
At an investor day last month, Verizon executives laid out a target of at least 4% annual service revenue growth by 2024, 5G-fueled growth in customer upgrades, new services like 5G home internet, and futuristic business-to-business products. They laid out multi-year guidance and strategic goals.
All the network upgrades required to make those happen come at considerable cost. Verizon was the biggest bidder in the C-Band wireless spectrum auction, committing to spend roughly $53 billion on licenses useful for 5G and their associated clearing costs. Management also expects to invest $10 billion in the next few years to upgrade Verizon’s network equipment to handle that new spectrum—on top of an existing annual capital expenditure budget around $18 billion.
In the near term, those investments will weigh on Verizon’s profitability and management’s comments will be aimed at getting investors to focus on their long-term benefit to the company. Verizon took its leverage up significantly to fund its C-Band splurge, and repaying its borrowings will be another drain on capital in the coming years.
With first quarter results expected to be mixed and substantive new guidance or targets unlikely so soon after an investor event, Verizon stock isn’t likely to make any significant moves on Wednesday. The shares have declined on the day of Verizon’s earnings release in seven of its past 10 quarters, including a 3.2% drop after its latest report in late January.
“Verizon continues to have a lot to prove to investors around 5G investments leading to an accelerating growth profile in the next couple years, and we question the profitability if the growth does come to fruition,” KeyBanc Capital Markets analyst Brandon Nispel wrote in a report last week.
Wednesday’s first-quarter results won’t silence the debate over management’s strategy—investors still need to be convinced that Verizon’s 5G-related growth will pick up in the coming years. Until then, it’s a utility-like stock with a 4.3% annual dividend yield and predominantly value-investor appeal.
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