Verizon Communications Inc. Earnings: Can Big Red Stay Ahead of the Pack?

On Thursday, Verizon Communications (NYSE: VZ  ) will release its quarterly report, and investors are looking forward to seeing substantial earnings growth this quarter and for the remainder of the year. Although the company's complete takeover of its Verizon Wireless division is responsible for much of that growth, Verizon has also done a reasonably good job of keeping archrival AT&T (NYSE: T  ) at bay, while also distancing itself from pricing pressure from T-Mobile US (NYSE: TMUS  ) and Sprint (NYSE: S  ) .

Verizon has done a good job of outpacing AT&T and its other mobile peers in the key wireless market, with faster revenue growth, better margins, and stronger growth in average revenue per user than its archrival. Yet, in addition to wireless services, Verizon has also identified the value of providing broadband Internet to residential and business households, and its FiOS offering has attracted subscribers and encouraged them to bundle services with Verizon. But can Verizon keep up its breakneck pace? Let's take an early look at what's been happening with Verizon during the past quarter, and what we're likely to see in its report.


Source: Verizon Wireless.

Stats on Verizon

Analyst EPS Estimate

$0.87

Change From Year-Ago EPS

28%

Revenue Estimate

$30.7 billion

Change From Year-Ago Revenue

4.3%

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

How high can Verizon earnings soar?
In recent months, analysts have gotten a bit more enthusiastic about Verizon earnings, raising both first-quarter and full-year 2014 estimates by $0.02 per share. The stock has barely budged recently, falling less than 1% since mid-January.

Verizon's fourth-quarter earnings report included some impressive results, including a 74% jump in adjusted earnings compared to the year-ago quarter. Average revenue per user jumped by 7% in its wireless business, reaching $157 per month, and helping to drive Verizon's overall revenue and profits higher. Moreover, many expect Verizon to keep seeing growth in this figure as more of its customers embrace smartphones and higher-data-use devices that require higher-end data plans in order to maximize their usefulness.

Competitors, though, have started looking to challenge Verizon's leadership position. T-Mobile has made efforts to introduce price competition to the industry, with lower-cost plans that have forced AT&T to answer with margin-trimming reductions of its own. It's unclear how far Verizon will go to join in the price war, but Masayoshi Son, who is chairman of Sprint's new parent company, has said that he wants to join the fight against Verizon and AT&T's high prices -- ideally by joining forces with T-Mobile to match up against the two larger carriers.

But one interesting victory for Verizon this quarter came on the high-speed Internet front, where the carrier won the right to throttle high-bandwidth websites in contravention of the net-neutrality doctrine. The question is whether Verizon will actually follow through on its new ability, as many believe that doing so would backfire by forcing customers to seek alternatives to Verizon Internet service in order to keep access to the websites they want. With major cable providers looking to merge, the pressure on Verizon and AT&T to keep up the pace with their Internet service will be even greater in the months and years to come.

Meanwhile, Verizon is still making efforts to grow. Earlier this month, Verizon said it would acquire a regional carrier that is the nation's ninth-largest wireless company. Not only does the deal include 300,000 customers, but it also would give Verizon valuable spectrum assets that it can use for its existing client base. In the ongoing battle to provide the best technology, having spectrum available is a key advantage that Verizon hopes to wield well into the future.

In the Verizon earnings report, watch to see how Big Red decides to respond to T-Mobile's price-war threat. As long as T-Mobile and AT&T are content to fight things out among themselves, the distraction might actually benefit Verizon, as it concentrates on moving forward more aggressively in the U.S. wireless market.

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