Can Verizon Benefit from This News?

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 Wireless and Wireline. Verizon Wireless’s communications products and services include wireless voice and data services and equipment sales, which are provided to consumer, business and government customers across the United States. Wireline’s communications products and services include voice, Internet access, broadband video and data, Internet protocol network services, network access, long distance, and other services.

Vodafone (NYSE:VOD) has confirmed that it is in discussions with Verizon to sell its 45 percent stake in Verizon Wireless to Verizon. People familiar with the matter who spoke to Bloomberg said the deal would be worth around $130 billion. The move would help Vodafone CEO Vittorio Colao pour cash into the company’s sagging European businesses, which have suffered from the economic downturn there.

T = Technicals on the Stock Chart are Mixed

Verizon stock has been struggling over the last several months as it continues to pullback. However, recent news offered a nice pop to the company so momentum may 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 key averages, which signal 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

22.90%

96%

95%

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

September Options

Flat

Average

October 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 Rising 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 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

14.06%

15.25%

-107.21%

14.29%

Revenue Growth (Y-O-Y)

4.32%

4.17%

5.66%

3.92%

Earnings Reaction

-1.51%

2.76%

0.58%

2.37%

Verizon has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have mostly 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), Sprint (NYSE:S), and sector?

Verizon

AT&T

T-Mobile

Sprint

Sector

Year-to-Date Return

10.86%

-0.15%

17.81%

19.40%

11.73%

Verizon has been an average relative 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 is currently in talks with Vodafone in order to acquire its remaining stake from Vodafone. The stock has struggled in recent quarters but is currently bouncing back from recent lows. Over the last four quarters, earnings and revenues have been rising which has left investors mostly pleased with the company. Relative to its peers and sector, Verizon has been an average year-to-date performer. WAIT AND SEE what Verizon does this coming quarter.

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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