Does Verizon Have a Bright Future?

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.

Numerous tech giants have been eager to publish what they can about government data requests, but telecoms haven’t been so forthcoming. Verizon is breaking some ground, though, with plans to publish semi-annual transparency reports starting in early 2014. While the reports will mostly reflect information that the carrier has already been publishing in some form, the data will be more accessible and consistent than before. Much like Google, Verizon plans to break down requests by type, such as court orders and warrants. It’s also asking the government if it can be more precise with the number of National Security Letters it received last year. Although it’s doubtful that the reports will reveal everything that the public would like to know, they represent a big step forward for a communications industry that many believe is too eager to cooperate with government eavesdroppers.

T = Technicals on the Stock Chart Are Mixed

Verizon stock has been pulling back in recent quarters. However, the stock is currently surging higher, but may need time to stabilize. 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 rising 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-Day IV Percentile

90-Day IV Percentile

Verizon options

21.00%

80%

78%

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

January Options

Steep

Average

February 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 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

3.49%

-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.

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

-7.17%

-7.47%

74.94%

75.23%

21.10%

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 breaking some ground, with plans to publish semi-annual transparency reports starting in early 2014. The stock has been pulling back in recent quarters, 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.

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