Reviewing Verizon's Quarter With Morgan Stanley

In a report published Wednesday, Morgan Stanley analyst Simon Flannery commented on Verizon Communications Inc. (NYSE: VZ)'s first quarter results.

Shares of Verizon remain Overweight rated with an unchanged $50 price target.

Verizon reported an EPS of $1.02, $0.07 better than expected. According to Flannery, earnings beat may not be sustainable throughout the year as competition is expected to increase in the second quarter. In addition, the company's first quarter results include non-cash benefits from the Edge program and accounting for the wireline assets being sold to Frontier.

Flannery broke down the positives and negatives from the quarter as follows:

The Positives:

• Verizon's Wireless Service margins of 55.8 percent were 500 basis points higher than Flannery's estimates while SG&A was $700 million lower than his estimates.
• Wireless equipment revenue of $3.4 billion was higher than the $3.2 billion Flannery expected.
• The Take rate for the Edge program was 39 percent in the quarter and approaches 50 percent – ahead of prior guidance of approximately 35 percent.
• Postpaid churn of 1.03 percent was lower than expected and better than the 1.07 percent the company reported last year.

The Negatives:

• Wireless Services Revenue fell 0.4 percent year-over-year and 1.6 percent quarter-over-quarter.
• Wireless Postpaid net adds of 565,000 was lower than the consensus.
• Wirelines Revenues were 2.0 percent lower year-over-year.
• Wirelines EBITDA margins of 22.7 percent was lower than consensus expectations, but still improved 22.5 percent a year ago.