Telecom giant Verizon Communications, Inc. (NYSE: VZ – $53.12) reported fourth-quarter earnings of $0.86 a share, two cents below Street estimates and equal to the year-ago result, on a better-than-expected 5% top-line increase. This uninspiring performance reflects the combined results of the 2016 sale of the company’s high-margined wireline operations in California, Florida and Texas to Frontier Communications; the ongoing shift to wireless customers to device payment plans; and the ramping up of its new business model, which includes Yahoo! and AOL. But the news is not all bad, however. During the December quarter, Wireless reported a 1.7% uptick in fourth-quarter revenues (driven by improving service revenues), the company’s first year-over-year wireless revenue growth in two years. The percentage of phone activations on device payment plans was about 80% in the December quarter, compared to roughly 67% at year-end 2016. The company added 1.2 million retail postpaid net additions during the final quarter, bringing Verizon’s total number of retail connections to 116.3 million, a 1.8% year-over-year increase. Separately, total revenues for the Wireline division’s FiOS fiber-optic-based services were up a modest .1% year over year, driven by 47,000 FiOS Internet connections and a loss of 29,000 FiOS Video connections in the final quarter of 2017.
The outlook for New York-based Verizon’s performance for this year has improved a bit of late, thanks, in part, to the recent tax reform. More specifically, given the turnaround in Verizon Wireless service revenues, I am now more confident that the company will post full-year consolidated revenue growth in the low single-digits. In addition, the expected saving from tax reform will generate a net $3.5 billion to $4.0 billion increase in cash flow from operations in 2018. This is expected to yield a significant increase in 2018 share net, and the Street has full year earnings pegged at $4.12 a share. In all, this investment grade stock remains a good choice for conservative accounts, thanks to its impressive 4.4% dividend yield, low market volatility (Beta of .75), a strong balance sheet and a reasonable valuation.