Earnings preview: Will Verizon gain from wireless growth, 5G in Q2?

Telecom giant Verizon Communications (NYSE: VZ) is scheduled to publish second-quarter results Thursday before the opening bell. Revenues are forecast to move up 1% to $32.41 billion. At $1.2 per share, the earnings estimate matches last year’s bottom-line performance. Earnings topped the Street view in each of the four trailing quarters and the trend is expected to continue this time.

While the previous earnings report failed to impress the market, the overall improvement in operations since then points to a better performance in the to-be-reported quarter. It is estimated that this time revenues got a boost from the booming wireless business, which accounts for about two-thirds of the company’s total revenues. There has been a steady increase in the demand for wireless service.

5G in Focus

The general uptrend is expected to extend into the coming quarters, buoyed by the progress being made in the deployment of 5G, the next-gen network service pioneered by Verizon. When it comes to long-term prospects, the company’s recent foray into the video streaming realm and the ongoing expansion initiatives, such as partnerships with providers of video playback services, are expected to drive growth.

Also read: Verizon slips after Citi downgrades stock

Meanwhile, the softness in the wireline service is estimated to have persisted in the second quarter, due to the growing popularity of cheaper alternatives. Also, the stress on liquidity due to heavy spending on network infrastructure is a cause for concern.

Q1 Performance

In the first quarter, earnings rose by 3% to $1.20 per share and topped the Street view. The bottom-line benefitted from a modest increase in revenues to $32 billion, which however missed the estimates.

Competition

AT&T (T), Verizon’s main competitor, last week said its second-quarter earnings dropped to $0.89 per share, despite a 15% growth in revenues to $45 billion. While there was a 9% rise in monthly subscribers, margins suffered due to a double-digit increase in operating expenses during the quarter.

Related: Verizon Q1 2019 Earnings Conference Call Transcript

Verizon’s shares, a favorite among dividend investors for their high yields, are expected to come out of the current slump as the company goes full throttle on 5G deployment, complementing the mass adoption of the technology. The stock witnessed a great deal of volatility in recent months and is currently trading at the levels seen at the beginning of the year. In the past twelve months, it gained about 9%.

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