Should You Consider Verizon?

With shares of Verizon (NYSE:VZ) trading around $49, is VZ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Verizon is a provider of communications, information, and entertainment products and services to consumers, businesses, and governmental agencies. It operates in two primary segments: Verizon Communications and Wireline. Verizon Communications’ products and services include wireless voice, data services, and equipment sales, which are provided to consumer, business, and government customers across the United States. Wireline’s products and services include voice, Internet access, broadband video and data, Internet protocol network services, network access, long distance, and other services.

Another shot has been fired in the ongoing battle between Netflix (NASDAQ:NFLX) and Verizon. After a Netflix image of the company blaming Verizon for poor service quality went viral after being posted on Twitter by Vox Media designer Yuri Victo, the wireless and Internet services firm responded by sending Netflix a notice of the “Cease and Desist” variety. So if Netflix continues those anti-Verizon messages, it may get sued. A Verizon spokesperson also referred to the message as “a PR stunt” in a conversation with CNET. Verizon’s letter details that the user experience is Netflix’s responsibility. Indeed, in the first instance, responsibility for its customers’ experience falls squarely on Netflix itself.

T = Technicals on the Stock Chart Are Mixed

Verizon stock has struggled to make significant progress over the last couple of years. The stock is currently trading sideways and may need time to consolidate before heading higher. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Verizon is trading above its rising key averages which signal neutral to bullish price action in the near-term.

VZ

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Verizon options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Verizon options

15.27%

73%

70%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Verizon’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Verizon look like and more importantly, how did the markets like these numbers?

2014 Q1

2013 Q4

2013 Q3

2013 Q2

Earnings Growth (Y-O-Y)

69.12%

18.92%

39.29%

14.06%

Revenue Growth (Y-O-Y)

4.75%

3.67%

4.39%

4.32%

Earnings Reaction

-2.42%

-0.77%

3.49%

-1.51%

Verizon has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Verizon’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Verizon stock done relative to its peers, AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS), Sprint (NYSE:S), and sector?

Verizon

AT&T

T-Mobile

Sprint

Sector

Year-to-Date Return

0.93%

-0.50%

0.68%

-18.70%

-3.39%

Verizon has been a relative performance leader, year-to-date.

Conclusion

Verizon provides communications products and services through a variety of mediums to consumers and companies around the world. After a Netflix image of the company blaming Verizon for poor service quality went viral after being posted on Twitter, the wireless and Internet services firm responded by sending Netflix a notice of the “Cease and Desist” variety. The stock has struggled to make significant progress and is currently trading sideways. Over the last four quarters, earnings and revenues have been increasing, which has left investors pleased. Relative to its peers and sector, Verizon has been a year-to-date performance leader. Look for Verizon to OUTPERFORM.

Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

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