Verizon's Wireless Segment Facing Pressure While Wireline Shows Promise

The third-quarter results of Verizon Communications Inc. VZ were a mixed bag as the EPS beat was offset by disappointing wireless subscriber additions. However, Morgan Stanley maintains its Overweight rating, as it believes the company would benefit in a low rate environment.

The company reported adjusted EPS of $1.01, beating consensus estimate of $0.99. Consolidated revenues dropped 6.7 percent, near MS estimate of -6.8 percent year-over-year, but weaker than consensus expectations of -6.4 percent year-over-year.

Verizon added fewer-than-expected wireless subscribers as aggressive promotions of smaller rivals such as T-Mobile US Inc TMUS and Sprint Corp S have succeeded in winning subscribers from Verizon. In addition, the recent recall of the Samsung Note 7 and a backlog in orders for Apple Inc. AAPL's new iPhone 7 have also dented subscriber numbers.

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Verizon added a net 442,000 retail postpaid subscribers, including a -36,000 net loss in postpaid phones in what is usually a seasonally strong quarter. FactSet estimated additions of 766,300. On an LTM basis, postpaid phone net adds fell 48.7 percent this quarter.

“With T-Mobile and Sprint both reporting strong postpaid adds, it seems the Bells continue to donate share,” analyst Simon Flannery wrote in a note.

Flannery, who has a $60 price target, cut his postpaid net additions for the year to +2264k, including a 21k net loss in postpaid phones. However, the analyst raised his 2016 EPS estimate to $3.93.

Meanwhile, Verizon expects GDP level consolidated revenue growth in 2017.

“While Verizon had softer wireless results this quarter, we continue to see it as the better of the Bells which both continue to benefit from a low interest rate environment. With the current spread to Treasuries widening from and the P/E below the respective 5 year averages, we continue to reiterate our OW rating,” Flannery added.

At last check, Verizon was down 1.83 percent at $48.24.

Full ratings data available on Benzinga Pro.