3 Potential Surprises in Thursday's Verizon Earnings

On Thursday, Verizon Communications (VZ 3.56%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever surprises inevitably arise. That way, you'll be less likely to have an uninformed, knee-jerk reaction that turns out to be exactly the wrong move.

Verizon has done an excellent job of catching up to rival AT&T (T 1.07%) in offering the iPhone and other popular smartphone models, reasserting itself as a vital part of the U.S. wireless telecom duopoly and a worthy member of the Dow Jones Industrials (^DJI 0.74%). But will the company take steps to bolster its independence in the U.S. market? Let's take an early look at what's been happening with Verizon over the past quarter and what we're likely to see in its quarterly report.

Stats on Verizon

Source: Yahoo! Finance.

Let's take a look at three potential surprises Verizon could give investors in this earnings report.

1. Can Verizon's iPhone sales thwart analyst pessimism?
In recent months, analysts have become less enthusiastic about Verizon's earnings prospects. They've cut their views on the just-ended quarter by a penny per share while reducing their full-year 2013 calls by $0.07 per share. Yet the stock hasn't shared any of that pessimism: Its price has jumped almost 20% since early January.

Last quarter, nearly two-thirds of the phones Verizon activated were iPhones. That won't be the case this time around, but if the company can take advantage of AT&T's sluggishness in offering LTE service in major markets, then it could easily surpass skeptical analysts.

2. Will Verizon end smartphone subsidies?
One sticking point for AT&T and Verizon has been the earnings hit they take in selling the iPhone and other heavily subsidized smartphone models. T-Mobile has taken the issue head-on by aiming to end phone subsidies entirely, opting instead for payment plans.

Verizon hasn't taken any extreme measures yet, but just last week it lengthened its upgrade policy from 20 months to 24 months. This could be a precursor to a more drastic move to end subsidies, and shareholders would likely applaud the positive earnings impact if Verizon could make no-subsidy phone sales work.

3. Will Verizon take over Verizon Wireless?
Right now, Vodafone (VOD 0.99%) has a 45% stake in the Verizon Wireless joint venture, with Verizon owning the remaining 55%. Vodafone's stake resulted in $8 billion in dividends for the company -- money that Verizon investors might prefer to keep.

A potential deal could take many forms. An outright purchase of Vodafone would likely be too big for Verizon to pull off, but a breakup of Vodafone that sent its international assets to AT&T while Verizon got 100% control of the U.S. joint venture might work. Other scenarios, including a simple merger or a stock purchase, could also be viable. Any combination of Verizon and Vodafone could put even AT&T under pressure, not to mention smaller domestic and international competitors.

Will Verizon surprise you?
Whether any of these surprises actually comes to pass this quarter remains to be seen. But keep your eyes open to see whether the company moves in the direction of any of these possible outcomes.

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