We are well into the current earnings release season. Many companies have already reported and the news has been mostly negative. Although results have been mixed, guidance is the one constant.
Things are bad and they are likely to get worse. That is a common refrain for almost any publicly traded company reporting earnings. Can we find any good news amidst the growing list of carnage?
Yes, but only if we lower our expectations a bit. It is safe to say that good news today would be simply stating that the future will not be as bad as many expect.
In other words companies that simply meet expectations or only lower future guidance by a small margin can be considered positive for stocks. Such is the benefit of a market whereby shares have been clobbered.
This morning Verizon Communications, Inc. (VZ) released its earnings report. The company stated that excluding charges for lay-offs and merger cuts profits came in at $.66 per share in the third quarter. The 31% profit improvement from last year was related to better than expected performance from its wireless unit.
This performance matches Wall Street estimates and they are to be applauded for doing so in a difficult market environment, but what about the future?
VZ did state that it expected consumer and business spending to be lower in the fourth quarter. The key is that the outlook is prefaced by the words ‘somewhat lighter’. In other words it could have been much worse.
For the full year, VZ now expects profits to grow by 8%. At the start of the year, the estimate was for growth to be in a range of 8-10%. They still expect to hit the range even if on the low end. For the fourth quarter earnings are now pegged at $.62 versus the current expectation of $.65.
Hooray!
The news is being widely cheered in the market today with VZ up some 10%. Investors have been so destroyed of late that even negative news as l! ong as t he news is not that negative will rally as a result.
In the case of VZ the stock has lost nearly half its value in the last year as the economy moved into recessionary territory. Oddly enough telephone service is typically viewed as a utility and thus should be able to withstand a slow down in the economy.
That certainly seems to be the case as evidenced by third quarter results and only a slight reduction in future earnings expectations. VZ, due to the move to wireless service, traded previously like a growth stock.
The take-away for me is that VZ should be viewed more like a defensive stock. With the reduction in value, VZ’s dividend yield grew to more than 7%. The big gains today will reduce that number, but for good reason.
Investors can take comfort that the dividend will be paid. I guess not so bad news really is good news.
Read the latest reseach on Verizon
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This article was written by Jamie Dlugosch, contributor to InvestorPlace.com. For more actionable insight like this, go to: www.InvestorPlace.com.
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