Telecom & Wireless

Why Verizon's Earnings May Be Under a Cloud

Verizon Communications Inc. (NYSE: VZ) is scheduled to release its most recent quarterly results before the markets open on Tuesday. The consensus estimates from Thomson Reuters call for $1.11 in earnings per share (EPS) on $31.22 billion in revenue. That compares to the $0.95 per share and $29.81 billion reported in the first quarter of last year.

According to a number of accounts, the U.S. Department of Justice believes that major wireless carriers may have worked together to keep consumer prices high. The charge is aimed primarily at AT&T and Verizon, the two largest carriers. The accusations may cost the companies huge sums in fines, and probably more in rebates to customers.

AT&T and Verizon each have over 100 million subscribers. At the core of the probe is whether the companies made it difficult to move from one carrier to another. The financial enemy of these companies is churn, a term that means that subscribers pick one carrier and then quickly leave. To recoup the cost of marketing to initially get consumers requires that these consumers remain with the carrier for months, if not years. If they move to another carrier quickly, churn becomes the roadblock to profits.

As is the case with many such government probes, if the Justice Department finds there was an attempt to make customers spend more than they would have to in an entirely free market, the fines would be substantial. The government also would require the companies to reimburse consumers for the sums they overspent due to the scheming that set a system to illegally improve their revenue.

Excluding Monday’s move, Verizon has underperformed the markets in the past year with its stock down 1%. In just 2018 alone, Verizon is down nearly 10%.

Shares of Verizon were last seen up more than 1% at $48.50, with a consensus analyst price target of $56.08 and a 52-week range of $42.80 to $54.77. The stock has a dividend yield of 5.0% and a market cap of $199.6 billion.