Verizon's 2016 Guidance Has Moved Out Of Reach, Deutsche Bank Says

Verizon Communications Inc. VZ is likely to miss its 2Q and full-year EPS guidance due to wireline strike impacts and a slower uptake of EIP plans in Wireless, Deutsche Bank’s Matthew Niknam said in a report. He added, however, that Verizon’s shares would probably not come under pressure on account of this.

Analyst Matthew Niknam reduced the EPS estimates for 2Q and 2016 to $0.91 and $3.82, versus consensus expectations of $0.96 and $3.92, respectively. “We see VZ’s ability to meet original 2016 EPS targets as increasingly unlikely.

Will The Risk To 2016 Matter?

Investor focus has shifted to 2017, since 2016 was expected to be a transition year for Verizon. Niknam noted that although another round of forecast cuts seems around the corner, the stock performance is likely to depend on “the direction of 2017 estimates, and how quickly VZ can return to “normalized” growth (which we think is in the mid-single-digit+ range).”

The analyst mentioned that any upside would be driven by:

• Significant improvement in Wireline margins
• A speedy return to Wireless service revenue stability or growth by late 2017, with further margin expansion
• Easing of the high near-term dilution from newer growth initiatives

Niknam maintained a Hold rating for the company, while raising the price target from $50 to $52 due to a roll-forward of the valuation to 2017 estimates, which are relatively unchanged.