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Can Verizon Maintain Its Robust Growth Trend in Its 1Q16 Earnings?

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Verizon’s earnings in 1Q16

Verizon (VZ) will report its results for 1Q16 on April 21, 2016. Wall Street analysts expect that on a year-over-year basis, the carrier’s earnings growth momentum will slow down during 1Q16. According to the consensus of these analysts, Verizon’s adjusted EPS (or earnings per share) should grow marginally by ~3.7% year-over-year (or YoY) in the quarter.

In 4Q15, Verizon’s adjusted EPS increased by a robust ~25.4% YoY. Additionally, Verizon’s adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] increased by ~11.8% YoY to ~$10.9 billion during the quarter.

Year-over-year, Verizon’s margin improved in 4Q15. The company’s adjusted EBITDA margin expanded YoY from ~29.4% in 4Q14 to ~31.9% in 4Q15. The Wall Street analysts expect this profitability metric to contract YoY from ~37.4% in 1Q15 to ~36.8% in 1Q16.

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Consensus versus actual performance in recent quarters

As you can see in the above chart, Verizon has consistently beat earnings expectations of Wall Street’s analysts since 1Q15.

Verizon’s earnings were ~7.4% above Wall Street’s expectations for 1Q15. However, this outperformance figure on expectations came down evenly on a sequential basis in the next three quarters. In 4Q15, the earnings surprise with respect to Verizon was ~0.8%.

For diversified exposure to select telecom companies in the US, you may consider investing in the SPDR S&P 500 ETF (SPY). SPY held a total of ~2.8% in AT&T (T), Verizon, CenturyLink (CTL), Frontier Communications (FTR), and Level 3 Communications (LVLT) at the end of March 2016.

Later in this series, we will look at some of the operational and financial aspects that are expected to affect Verizon’s 1Q16 results.

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