Why Did Verizon Lower Outlook Despite Q1 Beat?

Verizon Communications (NYSE: VZ) reported stronger-than-expected Q1 results, topping both earnings and revenue estimates. The performance was driven by the first full quarter of ownership of TracFone Wireless, increased equipment revenue, as well as strong wireless service revenue growth.

Despite the beat, shares of the American multinational telecommunications conglomerate dropped 5.8% on April 22 to close at $51.91, after the company revised its guidance and now expects earnings and certain revenues at the lower end of the previously guided range.

Q1 Numbers

Adjusted earnings of $1.35 per share were a cent ahead of the analysts’ expectations of $1.34 per share. The company reported earnings of $1.36 per share for the prior-year period.

Revenues increased 2.1% year-over-year to $33.6 million and exceeded consensus estimates of $33.53 billion. The increase in revenues reflects a surge in total broadband net additions of 229,000, the highest broadband net additions recorded in more than ten years.

Notably, fixed wireless net additions jumped 2.5 times year-over-year to 194,000, while wireline broadband net additions came in at 35,000, aided by 60,000 Fiber Optic Service (Fios) Internet net additions.

FY2022 Outlook

Concurrent with the earnings, management updated financial guidance for FY2021.

The company now forecasts adjusted earnings at the lower end of the range of $5.40 to $5.55 per share, while the consensus estimate is pegged at $5.45 per share.

Disappointingly, service and other revenue are now forecast to be approximately flat compared to 2021.

Furthermore, wireless service revenue growth is expected to come at the lower end of the previously guided range of 9% to 10%.

CEO Comments

Verizon CEO, Hans Vestberg, commented, “The January launch of C-Band and expansion of our 5G Ultra Wideband network helped to amplify our fixed wireless momentum in both Consumer and Business, with quarterly additions 2.5 times that of our fourth-quarter performance, and drove momentum in wireless upgrades.”

He further added, “We continue to accelerate our C-Band network build with our goal of reaching at least 175 million people by the end of the year and, with the recent early clearing spectrum announcement, we now have the ability to deploy more of this spectrum a full year sooner.”

Wall Street’s Take

The Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on two Buys and three Holds. The average Verizon price target of $59.20 implies 14.04% upside potential to current levels.

Investors Weigh In

TipRanks’ Stock Investors tool shows that investors currently have a Very Positive stance on Verizon, with 8.1% of investors increasing their exposure to VZ stock over the past 30 days.

Bottom-Line

The company’s step to lower the guidance expectations reflects poorly on the stock, as seen in the dip in the share price despite the quarterly beat.

Investors will keep a close watch on the key metrics in the coming months to gain confidence in the long-term growth targets laid out by the company, especially an incremental $14 billion in service and other revenue by 2025.

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