What Investors Expect From Verizon's Earnings

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Verizon Communications (NYS: VZ) hit analysts' third-quarter earnings estimates of $0.56 per share right on the nose. But that EPS number included a $0.07-per-share adjustment upward to compensate for lump-sum payouts to employees leaving the company. Its fourth-quarter earnings will be released on Jan. 24, and Businessweek's poll of 33 analysts has come up with a consensus EPS estimate of $0.53.

The company didn't give any financial expectations for the fourth quarter during its third-quarter conference call.

Verizon has two main segments. Its wireline component provides voice, Internet, and video services to customers in the U.S. and around the world. And its Verizon Wireless unit, a partnership with Vodafone (NYS: VOD) , of which Verizon owns 55%, provides wireless services domestically.

Verizon Wireless is the largest domestic mobile carrier and has a large lead over its nearest rival, AT&T (NYS: T) , in the race for 4G LTE coverage. The company announced this week that its latest LTE expansion brings its total up to 195 markets. AT&T's latest tally is 26 LTE markets.

With the release of Apple's (NAS: AAPL) iPhone 4S in October, Verizon sold a record 4.2 million of the units in the fourth quarter but, paradoxically, saw its profit margins drop 5% quarter to quarter. That was caused by the high iPhone subsidies that Verizon -- as well as AT&T and Sprint Nextel (NYS: S) -- have to pay to entice customers into signing two-year contracts. That drop in margins is the likely cause of the lower earnings estimates.

Verizon's wireline services took a hit in the third quarter from storms and labor problems that put the company behind in its deployment of more FiOS installations. The company has put a high priority on transitioning away from its legacy copper cabling to its FiOS fiber optic delivery system. As it continues with more FiOS penetration, Verizon expects its wireline financial performance to improve. This will be an area to check out carefully when the earnings come out.

I think Verizon is in the best position of all the domestic carriers. With its late 2012 agreement to buy a large cache of wireless spectrum from a consortium of cable companies, it has further widened its spectrum gap with AT&T. And its large 4G LTE footprint can only be a big plus in our greater LTE-conscious environment.

With the advantages this company has over its competitors, and because of its investor-attracting dividend, I think the future belongs to Verizon. I am giving it an outperform on CAPS.

While waiting for Verizon's earnings to come out, you can learn about more solid high-yielding investments with this special free report from The Motley Fool's Stock Advisor team: "Secure Your Future With 11 Rock-Solid Dividend Stocks."

At the time this article was published Fool contributorDan Radovskyowns shares of AT&T. The Motley Fool owns shares of Apple.Motley Fool newsletter serviceshave recommended buying shares of Vodafone Group and Apple and creating a bull call spread position in Apple. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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