It Is Time for Verizon to Make a Deal -- Ahead of the Tape

By Steven RussolilloFeaturesDow Jones Newswires

Verizon Communications Inc. needs to make a splash, and fast.

The U.S.'s largest wireless carrier by subscribers has had a busy start to the year, but it hasn't been enough. It unexpectedly brought back its unlimited wireless plans for the first time since 2011. The company rebranded its media and advertising unit as "Oath," housing AOL and eventually Yahoo -- with that deal expected to close in June. Verizon also declined to bid on the U.S. government's recent wireless airwaves auction.

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What the company didn't do was undertake a rumored big acquisition to improve its trajectory. That leaves Verizon in a familiar position: Growth is slowing on the top and bottom lines and its stock price is struggling. First-quarter results, out Thursday, likely won't change any of that.

Analysts polled by FactSet anticipate earnings of 96 cents a share, down 10 cents from a year earlier. Revenue is expected to have decreased 5.5% to $30.4 billion, which would mark the fourth consecutive quarterly decline after six years of growth. Verizon has said it expects earnings and sales will be roughly flat this year.

The company has opted for smaller digital deals in recent years to diversify itself from a saturated wireless market that has hurt subscriber growth. That pales in comparison to rival telecom giant AT&T Inc., which bought DirecTV for nearly $50 billion in 2015 and reached a still-pending deal last year to acquire Time Warner Inc. for $85 billion.

In January, The Wall Street Journal reported Verizon was exploring a combination with Charter Communications Inc. Just this week, Lowell McAdam, Verizon's chief executive, told Bloomberg News that he would be open to deal talks with a handful of companies.

All of this comes as Verizon's main wireless business has struggled. Wireless service revenue dropped 5% in its fourth quarter and postpaid churn -- the rate at which contract customers canceled service -- increased to 1.1% from a year earlier, higher than usual. That came before Verizon said it would start offering unlimited plans again. And with more people now likely to opt for them, that raises questions about how Verizon's network will accommodate the burden of additional data traffic.

These concerns help explain why Verizon's stock is down about 8% this year. It is one of the worst performers in the Dow Jones Industrial Average, lagging behind AT&T as well as smaller rivals Sprint Corp. and T-Mobile US Inc.

Yet Verizon's share price, which is little changed from where it traded three years ago, probably hasn't fallen far enough to warrant much attention from bargain hunters. Fetching 13 times projected earnings over the next 12 months, its forward multiple is roughly around its average in recent years.

This stock isn't ready to dial up gains just yet.

(END) Dow Jones Newswires

April 19, 2017 14:56 ET (18:56 GMT)