Can Verizon See Price Appreciation On a Recent Release?

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’ 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 communications products and services include voice, Internet access, broadband video and data, Internet protocol network services, network access, long distance, and other services.

Verizon reported year-over-year double-digit percentage growth in operating income and earnings per share for the third consecutive quarter. Third-quarter 2013 results showed continued high customer demand for Verizon Wireless, FiOS and strategic enterprise services. Lowell McAdam, Verizon chairman and CEO, said that, “These strong third-quarter results reflect Verizon’s long-term investment in reliable, high-quality networks to deliver value to customers. Our unwavering focus on wireless, FiOS, and strategic enterprise services has produced consistent performance, and we’ve delivered double-digit earnings growth in six of the past seven quarters. Verizon’s strategic networks form a powerful distribution platform for future growth and innovation.”

T = Technicals on the Stock Chart Are Mixed

Verizon stock has been moving much higher in recent quarters. However, the stock has been pulling-back from yearly highs for most 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 around 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

18.02%

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

November Options

Steep

Average

December 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 small 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

39.29%

14.06%

15.25%

-107.21%

Revenue Growth (Y-O-Y)

4.39%

4.32%

4.17%

5.66%

Earnings Reaction

3.68%*

-1.51%

2.76%

0.58%

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 = 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

12.66%

1.96%

36.77%

15.23%

17.65%

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. A recent earnings release has investors happy about the company. The stock has made significant progress in recent years but has struggled for the better half of this year. 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.

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