Can Verizon Move Higher After a Recent Deal?

With shares of Verizon (NYSE:VZ) trading around $45, 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: With shares of Verizon (NYSE:VZ) trading around $45, 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.

Verizon has moved forward with readying investments to purchase Vodafone’s (NASDAQ:VOD) stake in Verizon Wireless, which will cost Verizon Communications $130 billion. Verizon has begun syndicating a $61 million bridge loan, sources told Reuters. The acquisition is expected to close in the first quarter of next year. Verizon will pay Vodafone $58.9 million in cash and will back the rest of the deal with loans, the sources said.

T = Technicals on the Stock Chart Are Weak
Verizon stock has struggled to make positive progress in the last several months. The stock is currently trading near opening prices of the year. 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 below its key averages which signal neutral to bearish 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-IV Percentile

90-Day IV Percentile

Verizon Options

23.68%

93%

90%

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. Verizon is a provider of communications, information and entertainment products and services to consumers, businec0al?

Put IV Skew

Call IV Skew

September Options

Steep

Average

October Options

Steep

Average

As of today, there is an average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish 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 bearish 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 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 generally been pleased with Verizon’s recent earnings announcements.

P = Weak 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

-13.20%

-8.28%

35.66%

22.88%

10.17%

Verizon has been a poor 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 reportedly ready to pursue the purchase of Vodafone’s stake in Verizon Wireless. The stock has struggled in the last several months and looks to be trending lower. Over the last four quarters, earnings and revenues have been rising which have generally pleased investors in the company. Relative to its peers and sector, Verizon has been a weak year-to-date performer. WAIT AND SEE what Verizon does this coming quarter.

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