Competitive Pressures For Verizon 'Evident'

Verizon Communications Inc. VZ's Q3 results confirmed the expectations of increased wireless competition, which is expected to continue into Q4 and maybe even beyond.

Jefferies’ Mike McCormack maintains a Hold rating on the company with a price target of $53.

Intensifying Competition

“It was noted that unlimited offerings by competitors weighed on gross adds, but Verizon remains steadfast in its decision not to offer similar plans,” McCormack mentioned.

Investor concerns regarding rising competition were confirmed by the unexpected decline in handset net additions and slightly weaker than anticipated margins. However, management appeared optimistic that handset additions would improve in Q4.

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However, revenue for the quarter was in line with expectations, driven by higher than expected ARPA.

“While new plans introduced in July should be accretive to ARPA over time, we had anticipated some early optimizing, which appears to have been a non-factor. Given the trajectory, we continue to view Verizon's outlook for service revenue growth exiting 2017 as achievable,” McCormack stated.

Beat Results

On the other hand, wireline results exceeded expectations, and the analyst believes that activity levels returned to normal levels more quickly than expected, driving better than anticipated FiOS volumes for the quarter.

In addition, EBITDA margins came in at 21.2 percent, the highest level in several years.

The analyst believes the results possibly reflect “early benefits from the new labor contract, with management expecting further margin expansion going forward.”

At last check, Verizon was down 1.4 percent at $48.45.

Full ratings data available on Benzinga Pro.