Q4 Preview: Massive Smartphone Sales May Hamper Verizon (VZ)...At Least Near-Term

Shares of Verizon Communications (NYSE: VZ) are trading lower ahead of its fourth-quarter 2011 report. Shares are off about 1.4 percent late Monday.

Ahead of the opening bell Tuesday, Verizon is expected to report earnings of 53 cents per share on revenue of $28.39 billion. The company reported earnings of 54 cents per share reported in the same period last year.

Shares gained 10.5 percent in the quarter and are about 3 percent lower since. Over the last 52-weeks, Verizon has traded within a range of $32.28 to $40.48.

Data from Bloomberg has 16 analysts with a Buy rating on Verizon, 20 at Hold, and two with a Sell.

The Street currently maintains a price target average of $40, with a low of $33 and high of $45. At $40, the Street's midpoint suggests 4 percent of upside.

Analyst Comments

• Collins Stewart is looking for EPS of 52 cents per share, which was recently lowered following strong Apple (Nasdaq: AAPL) iPhone sales numbers. The firm commented, "Although 4Q11 sales trend for both the iPhone and LTE devices will likely be stronger than our prior expectations, we expect the strength to be primarily driven by higher than expected upgrades from the existing base, rather than from new subscribers. Accordingly, we are only marginally adjusting our postpaid net addition estimates from 1.22mm to 1.25mm."
  
  With bigger subsidy costs on better smartphone sales, the firm sees wireless margins at about 42.1 percent.
  
  
• Wells Fargo is looking for EPS of 52 cents and wireless margin of 42.2 percent given stronger smartphone sales. Churn should come in at 1.0 percent on postpaid, with EBITDA of $6.45 billion.
  
  On Verizon's wireline segment, the firm said, "After accounting for the impact of Hurricane Irene and the strike in Q3, we are modeling the wireline business to regain momentum from where it left off in Q2. Specifically, our EBITDA margin estimate for Q4 is 24.0%. We are estimating wireline revenue and EBITDA of $10.3B and $2.47B, respectively."
  
  
• Deutsche Bank is modeling earnings of 51 cents per share and EBITDA margin of 42.3 percent. The firm sees postpaid adds of 1.20 million, churn of 0.93 percent, and service revs of $5.3 billion. Verizon should take a $5 billion to $6 billion one-time charge in the quarter on pension costs. Deutsche Bank said, "The two key drivers of this charge are a lower discount rate used for calculating the PV of pension obligations (5% vs. 5.75%) and a lower than anticipated ROA (5% vs. 8%). This equates to an after-tax EPS impact of $1.35/share." ARPU growth is expected to be at 3 percent.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of their release. You can also check out Verizon's past performance at Streetinsider's Verizon's Income Statement.

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