Morgan Stanley Previews Verizon Communications Q4, Expects Below Consensus Results Amid Competitive Environment

Verizon Communications Inc. (NYSE: VZ) is scheduled to report its fourth quarter results on January 22, before market open.

Simon Flannery of Morgan Stanley is projecting the company will earn $0.69 per share in the quarter, below the consensus estimate of $0.75. The analyst expects revenue to total $32.174 billion, which also falls short of the consensus estimate of $32.632 billion.

“Fourth quarter may be the trough, but we expect elevated churn to continue in this competitive environment,” Flannery wrote. “While we believe that churn will settle from our estimated multiyear high of 1.10 percent, we believe that competition will remain intense in 2015.”

Flannery expects to see strength in the fourth quarter from the consumer segment due to the continued migration of consumers from copper to fiber and increased prices for FiOS in the quarter. The analyst adds that the Enterprise segment may see a “light at the end of the tunnel” as some one time pressures in small business from the third quarter should come back in-line in the fourth quarter as management continues to be more constructive on the segment.

However, Flannery quotes management's prior comments that the “laws of competition are going to prevail over the next year or so,” as carriers need to generate free cash flow to continue investing in their network. The analyst does add that Verizon offers an attractive yield and reasonable valuation, but competitive and regulatory headwinds do need to be considered.

Shares are Overweight rated with a $51 price target.

However, Flannery does state that the spectrum auction is the “elephant in the room” and the auction results could prove to be a negative headline risk for Verizon shares.