Where Will Verizon Go Next?

With shares of Verizon (NYSE:VZ) trading around $47, 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 recently announced a new discount to its More Everything plan to match a discount that rival AT&T (NYSE:T) began offering at the end of February, giving families the option to share up to four lines for $160 a month. AT&T grabbed a lot of headlines with its “Best Ever Prices” campaign, and Verizon was essentially forced to match it in order to remain competitive. Verizon’s More Everything plan increases discounts from $20 to $25, meaning smartphones on the plan are $15 per line rather than $40.

T = Technicals on the Stock Chart Are Mixed

Verizon stock has been pulling back in recent times. However, the stock is currently surging higher and looks poised 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 between its rising key averages, which signals neutral 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

17.57%

33%

30%

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

May Options

Average

Average

June Options

Average

Average

As of Thursday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral 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?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

18.92%

39.29%

14.06%

15.25%

Revenue Growth (Y-O-Y)

3.67%

4.39%

4.32%

4.17%

Earnings Reaction

-0.77%

3.49%

-1.51%

2.76%

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

-2.52%

0.91%

-1.31%

-11.9%

-2.7%

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. The company recently announced a new discount to its More Everything plan to match a discount that rival AT&T began offering at the end of February. The stock has been pulling back in recent times but is currently surging higher. Over the last four quarters, earnings and revenues have been increasing, so investors have been pleased with recent earnings announcements. 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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