Will Verizon Make All-Time Highs This Year?

With shares of Verizon (NYSE:VZ) trading around $51, 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.

Verizo today reported its sixth consecutive quarter of double-digit percentage growth in operating income and earnings per share. In second-quarter 2014, the company delivered consolidated top-line growth, driven by strong wireless and FiOS revenues, and continued margin expansion. Chairman and CEO Lowell McAdam said, “Verizon’s second-quarter results continue to demonstrate our ability to deliver strong customer growth, with equally strong financial performance, in a dynamic and competitive environment. We have great momentum heading into the second half of the year. We remain focused on profitable growth and on meaningful network investments that provide our customers with the best, and with a continuously improving, overall experience.”

Verizon has posted double-digit year-over-year percentage growth in reported and adjusted EPS in nine of the last 10 quarters. Verizon reported $1.01 in EPS in second-quarter 2014, compared with 78 cents per share in second-quarter 2013. Second-quarter 2014 results included an after-tax gain of $434 million (10 cents per share). On an adjusted basis (non-GAAP), Verizon posted EPS of 91 cents in second-quarter 2014, a 24.7 percent increase compared with 73 cents per share in second-quarter 2013.

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 this path. 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

12.99%

0%

0%

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

Put IV Skew

Call IV Skew

August Options

Flat

Average

September 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 small 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 Q2

2014 Q1

2013 Q4

2013 Q3

Earnings Growth (Y-O-Y)

29.49%

69.12%

18.92%

39.29%

Revenue Growth (Y-O-Y)

5.70%

4.75%

3.67%

4.39%

Earnings Reaction

0.51%*

-2.42%

-0.77%

3.49%

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.

* As of this writing

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

3.16%

2.27%

-5.50%

-28.64%

-1.02%

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. The company on Tuesday reported better-than-expected quarterly revenue. 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 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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