Does Verizon Belong in Your Portfolio?

With shares of Verizon (NYSE:VZ) trading around $48, 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.

Verizon CEO Lowell McAdam shot down rumors that the company was in potential merger talks with satellite operator Dish Network (NASDAQ:DISH) on Tuesday, days after rival AT&T (NYSE:T) announced plans to buy top U.S. satellite operator DirecTV (NASDAQ:DTV). “I know there are reports out there that we are talking to Dish. I can tell you now, that is someone’s fantasy. There were not, and there are not, discussions going on with Dish,” McAdam told investors at the JPMorgan Global Technology, Media, and Telecom Conference. “I don’t think owning a satellite company is something I’m interested in at this point,” he said adding the company’s focus was on over-the-top programming, meaning content utilized over a network, but not offered by a network operator.

T = Technicals on the Stock Chart Are Strong

Verizon stock has struggled to make significant progress over the last couple of years. However, the stock is currently surging higher and looks set to continue. 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 signals neutral to bullish price action in the near-term.

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

14.63%

23%

20%

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

Put IV Skew

Call IV Skew

June Options

Flat

Average

July Options

Flat

Average

As of Tuesday, there is 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 minimal 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 = Average Relative Performance Versus Peers and Sector

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

Verizon

AT&T

T-Mobile

Sprint

Sector

Year-to-Date Return

-0.45%

2.1%

0.18%

-16.2%

-2.59%

Verizon has been an average performer, year-to-date.

Conclusion

Verizon provides communications products and services through a variety of mediums to consumers and companies around the world. CEO Lowell McAdam shot down rumors that the company was in potential merger talks with Dish Network. The stock has struggled to make significant progress but is currently surging higher. 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 an average year-to-date performer. Look for Verizon to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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