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Verizon Earnings Call: Yahoo, Frontier Deal, Strike, Wireless War

Verizon Communications ( VZ ), on the hunt for Internet pioneer  Yahoo ( YHOO ), is expected to update 2016 guidance when it reports Q1 earnings on Thursday, in the wake of selling wireline assets in three states to Frontier Communications ( FTR ). Verizon and AT&T ( T ) were among the best performing large-cap stocks in the S&P 500 in the March quarter. AT&T reports Q1 results on April 26. Verizon sold wireline assets in California, Florida and Texas to Frontier for $10.5 billion. The deal closed in early April. Aside from Verizon’s stated interest in acquiring Yahoo , analysts may ask for management views on how a strike by 39,000 wireline workers will impact Verizon’s FiOS business. “We expect Verizon to update 2016 guidance post the recent close of the Frontier deal, including clarity around EBITDA (earnings before interest expenses, taxes, depreciation and amortization) guidance and subsequent cost cuts, which we believe management has thus far conservatively guided,” said Colby Synesael, an analyst at Cowen & Co., in a report. “While it’s likely someone will bring up Yahoo during Q&A, it’s unlikely management provides much of a response.” Analysts polled by Thomson Reuters expect Verizon’s Q1 profit to rise 4% to $1.06 per share, with revenue growing 2%; these predictions include Verizon’s June 2015 acquisition of AOL. Wireless competition remained intense in Q1 amid a flurry of video-related promotions, analysts say. UBS analyst John Hodulik forecasts that Verizon will lose postpaid phone subscribers in Q1, as it did in the March quarters in 2014 and 2015.

Verizon Wireline, FiOS Workers Set Strike; Wireless Non-Unionized

Two unions representing Verizon Communication ’s ( VZ ) landline workers, including FiOS TV and broadband services, announced they plan to strike Wednesday at 6 a.m. ET if they cannot negotiate a new contract with the phone company by then. Verizon’s wireless workers are not unionized, except for roughly 100 employees. Verizon’s wireline workers also walked out in 2000 and 2011. The Communications Workers of America (CWA) and the International Brotherhood of Electrical Workers (IBEW) have been negotiating a new deal with Verizon since June. The two unions represent about 39,000 workers. Verizon has a total workforce of nearly 178,000. Verizon’s unionized workforce has shrunk from about 85,000 in 2000. Verizon now garners three-fourths of revenue from wireless services, following its divestiture of landline assets in California, Florida and Texas to Frontier Communications ( FTR ). The $10.5 billion Frontier deal closed last week. “Wireline represents only 25% of Verizon’s consolidated revenue, and 15% of EBITDA (earnings before interest, taxes, depreciation and amortization) following the sale to Frontier,” says a UBS report. Democratic candidate for president Bernie Sanders has voiced his support for Verizon’s landline workers. “We’ve worked hard in negotiations to find common ground, but working people at Verizon and across the country have had enough of the corporate greed that is destroying our families and our economy,” Dennis Trainor, CWA District 1 vice president, said in a press release Monday. The two unions and Verizon have been bargaining to resolve changes to health care and pension benefits, as well as wage increases and other issues. “We do not take strike threats lightly,” Bob Mudge, president of Verizon’s wireline network operations, said in a statement . “We have trained thousands of non-union Verizon employees to carry out virtually every job function handled by our represented workforce — from making repairs on poles to responding to inquiries in our call centers.” Verizon is slated to report its Q1 earnings on April 21.

Verizon Downgraded; Telecom Stocks Cool Off After Torrid Q1

Jefferies and Bernstein Research each downgraded Verizon Communications ( VZ ) Thursday, citing a lack of near-term catalysts and valuation after shares in the high-dividend phone company jumped 17% during the first quarter. AT&T ( T ) stock rose 14% in Q1, as investors sought safety amid market turmoil and falling global interest rates. Shares of Verizon and AT&T have edged down in April. Verizon stock was down 2.3% on the stock market today , while AT&T was down 0.8%. Still, both have high IBD Relative Strength Ratings, with Verizon at 91 and AT&T at 90. That means both names have performed among the top 10% of all stocks over the past 12 months, with an emphasis on the most recent six months. “We are downgrading Verizon to market perform with a target price of 55, in light of this year’s (largely macro-driven) run-up in its stock price and a refresh of our (valuation) model to reflect recent developments, including fourth-quarter quarterly results, full-year 2016 guidance and last Friday’s close of its divestiture of wireline assets in California, Florida, and Texas to Frontier ( FTR ),” said Paul de Sa, an analyst at Bernstein, in a research report. Frontier Communications paid $9.9 billion for those wireline assets and also took on $600 million in debt. Verizon is due to report earnings April 21; AT&T follows on April 26. “We are downgrading Verizon from buy to hold, but maintain our 53 price target,” Jefferies analyst Mike McCormack said in a report. “Although we continue to believe Verizon is well positioned in the industry long-term, we don’t believe near-term catalysts exist to provide upside to either our estimates, or our view on valuation.” Image provided by Shutterstock .