Verizon sets its sights on tablets

The company will announce its fourth-quarter figures on Thursday 22 January, and traders are expecting expansions within the wireless business. 

Verizon Wireless logo
Source: Bloomberg

Verizon’s acquisition of Vodafone’s 45% stake in the Verizon Wireless business for $130 million has increased its customer base. However, the real rewards from the deal are yet to be reaped. The largest wireless carrier in the US increased the number of post-paid connections by 1.5 million in the previous quarter, and that included 1.1 million connections from tablets.

The motivation behind the deal with Vodafone is to build up a client base across a wide variety of services. The traditional landline business is in decline, and Verizon registered a 0.8% drop in sales over the period. At the moment, business and home landlines account for approximately one-third of the company’s revenue, but the focus is going to be on the wireless industry.

The company has achieved low double-digit growth from smartphone instalment plans which do not require to be tied in for long-term contract. The majority of new business comes from tablets; this is an area which has the largest growth potential. Verizon is catching up with T-Mobile by offering discounted devices and short-term contracts to clients. The initiative has proved popular with students, and the aim is to cross-sell multiple services.

At the beginning of the month Verizon confirmed that it was not in talks to takeover AOL, but a joint venture between the two companies is still rumoured to be on the cards. AOL’s technology relating to online advertising and its online video content is what caught Verizon’s attention, and even though there is no deal on the table at the moment, a partnership between the companies is still a possibility.

The company will reveal its fourth-quarter figures on Thursday 22 January, and the consensus is for revenue of $32.63 billion and earnings per share of $0.74. The third-quarter figures were well received, and the revenue came in at $31.58 billion and EPS of $0.89, both meeting analysts’ estimates. The company will also announce its full-year figures on Thursday. Traders are expecting revenue of $126.5 billion and EPS of $3.41. These forecasts represent a 4.9% rise in revenue and a 20% jump in EPS.

Verizon chart

Investment banks are extremely bullish on Verizon, and out of the 40 ratings, 23 are buys and 17 are holds. The average target price is $53.05, which is 10.5% above the current price.

Equity analysts hold a moderately bullish stance on AT&T, and out of the 41 recommendations, 12 are buys, 25 are holds and four are sells. The average target price is $35.43, which is 4.8% above the current figure.

The number of clients taking a short position on Verizon has increased by 5% since the third-quarter figures were announced.

The 200-hour moving average which was previously providing support is now acting as resistance at $48.93, and if this is held the downside support at $46 will be the target. If the 200-hour moving average is cleared it will then become support and the upside resistance at $51 will be in sight.

IG offers extended trading hours on over 30 key US stocks, until 1am Mon-Thurs and 10pm Fri (London time), so you can make informed trades following company announcements this earnings season.

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