When Verizon’s stock value moves appreciably, it’s typically in response to something happening in the company’s wireless operations. But although Verizon’s wireless operations get most of the attention, wireline remains a significant part of Verizon’s business and deserves a bit of attention with the imminent release of its second-quarter results.
The company has sold off wireline operations, including some of its advanced FiOS networks, to Frontier for $10 billion. In December it sold dozens of data centers to Equinix in a $3.6 billion deal that closed during the second quarter. Verizon, like most of its peers, is exiting the expensive data center business in favor of focusing on the enterprise networking business.
At least in part to that end, the company bought XO Communications. Verizon’s second quarter will be the first full quarter with contributions from XO, and analysts are eager to see what those operations are doing for Verizon’s bottom line.
XO’s network can also be used to back up Verizon’s wireless network. Wireline is key to Verizon’s wireless plans. That’s the main reason Verizon recently ordered vast amounts of fiber, mostly from Prysmian and Corning, largely in anticipation of handling increasing wireless traffic as it evolves its wireless network from 4G to higher-capacity 5G technology.
Awaiting Verizon’s second-quarter results, analysts at Deutsche Bank Markets Research said that while they do not expect “meaningful organic inflections in Wireline (a full quarter of XO will benefit reported results), we do see continued yoy margin relief.” Their research note also said, “We also look for more color on VZ’s fiber initiatives, given recent announcements re: contracted builds with Corning and Prysmian.”
Analysts have been skeptical of the saturated wireline business, but now that the wireless business is saturated, too, at least one analyst remembered that more money is still more money. Seeking Alpha, commenting on the spinoff of assets to Frontier for $10 billion, said, “Of course the cash influx is nice, but it also comes with a diminished earnings power, effectively trading long-term cash flows for short-term cash flows. These assets were worth $0.10 a share in earnings. In the first quarter, we could simply subtract that $0.10 cent from the normalized estimate.”
That was an estimate, good for the first quarter, the first in which the contributions from those assets were missing. It’s the second-quarter results that are going to provide clues as to what the actual contribution was, so that a more accurate evaluation can be made, Seeking Alpha noted.
Marketwatch maintains a running tabulation on analyst recommendations. Through the last few quarters, Verizon has overwhelmingly been a “hold,” and that hasn’t changed in the run-up to the announcement of its second-quarter earnings.