Tax Reform Gives Verizon a $4 Billion Boost

Verizon Communications Inc. (NYSE: VZ) followed a 3 percent gain on Monday with another 1 percent gain Tuesday morning after the company reported a fourth-quarter revenue beat and said tax reform could add up to $4 billion to its operating cash flow this year.

Despite the positive recent momentum, Verizon stock has lagged the market the past year, and the environment for telecom stocks will likely continue to be a difficult one in 2018.

Verizon reported fourth-quarter earnings per share of 86 cents, just shy of consensus analyst estimates of 88 cents, and revenue of $33.96 billion, narrowly beating consensus expectations of $33.26 billion. Revenue was up 5.1 percent from a year ago, but adjusted EPS was flat as Verizon continues to invest heavily in its 5G network.

Verizon also reported a 1.2 million increase in retail postpaid connections, 647,000 of which were smartphones.

Verizon’s digital content arm Oath, which includes Yahoo and AOL, reported $2.2 billion in revenue for the quarter.

The company said tax reform will boost 2018 EPS to range between 55 and 65 cents. Verizon also said it will be making an announcement about “how employees will further share in the company’s success.” The company said the pending announcement, along with increased donations to the Verizon Foundation, will impact 2018 and 2019 EPS negatively by 5 to 6 cents.

Even after Tuesday morning’s gain, Verizon stock is up just 3.3 percent the past year as Verizon and telecom competitors AT&T (T), T-Mobile US (TMUS) and Sprint Corp. (S) continue their aggressive spending. Verizon plans to spend between $17 and $17.8 billion on its business this year and launch its 5G network in five cities by the end of 2018.

High-yielding dividend stocks like AT&T and Verizon may also be experiencing selling pressure thanks to rising interest rates. Now that fixed-income yields are creeping higher, Verizon’s 4.4 percent dividend doesn’t look quite so appealing to investors.

KeyBanc analyst Brandon Nispel says T-Mobile will likely continue to lead the telecom pack this year.

“In 2018, we expect T-Mobile to outperform its peers fundamentally,” Nispel wrote earlier this month. “We expect…

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