Utilities tend to outperform during recessions, and the economy may indeed be in recession; here, we profile two non-traditional utilities — Comcast (CMCSA) and Verizon Communications (VZ), says Rich Moroney, editor of Dow Theory Forecasts.
Firms like Verizon, which provide essential services, used to be common in utility portfolios a generation ago. While today’s utility funds tend to focus on traditional utilities, such as those that distribute electricity or natural gas, we acknowledge the ubiquity of phone and internet service, which provides Comcast and Verizon with utility-like streams of cash flow.
Comcast delivered seemingly solid June-quarter results. Per-share profits grew 20% on 5% higher sales, with both metrics comfortably exceeding the consensus. But Comcast failed to sequentially expand its base of internet subscribers for the first time ever.
We will be closely monitoring whether Comcast’s internet business, its most reliable growth driver, can get back on track. For now, strength at theme parks (quarterly sales rose 65%) and movie and TV studios (up 33%), along with Comcast’s ability to push through price hikes, should help offset softness in subscriber growth.
Verizon said June-quarter earnings per share slipped 4%, missing the consensus, on flat revenue. With high inflation cutting into discretionary spending, Verizon experienced weak subscriber growth. Net additions for phone subscribers totaled just 12,000 last quarter, well short of expectations.
Verizon raised subscriber prices in June and said an additional price hike may be on the horizon to counter rising costs. At the same time, Verizon is ramping promotional activity to bring in new customers.
Verizon also cut its 2022 profit outlook. Despite recent operating weakness, the stock yields 5.6% and has raised its dividend in seven straight years.
