Where Will Verizon Go Post-Earnings?

With shares of Verizon (NYSE:VZ) trading around $47, 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.

Verizon on Tuesday reported another strong quarter of earnings, revenue, and cash-flow growth. With fourth-quarter 2013 earnings per share of $1.76 (adjusted, non-GAAP, 66 cents), Verizon has posted year-over-year double-digit percentage growth in operating income and EPS in all four quarters of 2013 and in seven of the past eight quarters. Lowell McAdam, Verizon’s chairman and CEO, said: “Verizon delivered a total return of 18.6 percent to our shareholders in 2013, while attracting more customers than our competitors and improving our financial performance. This included more than 20 percent year-over-year increases in operating cash flow and EPS. In 2014, we look forward to acquiring sole ownership of Verizon Wireless, the best asset in the global wireless industry, and leveraging all our assets to deliver innovative products to customers and more value to shareholders.”

T = Technicals on the Stock Chart Are Mixed

Verizon stock has been pulling back in recent times. The stock is currently trading sideways and may need time to consolidate before heading higher. 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 rising key averages, which signals 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

19.28%

3%

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

February Options

Average

Average

March Options

Average

Average

As of Tuesday, there is average demand from call and put buyers or sellers, all neutral over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral 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 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

18.92%

39.29%

14.06%

15.25%

Revenue Growth (Y-O-Y)

3.67%

4.39%

4.32%

4.17%

Earnings Reaction

-1.95%*

3.49%

-1.51%

2.76%

*As of this writing.

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 = Excellent Relative Performance Versus Peers and Sector

How has Verizon stock done relative to its peers – AT&T (NYSE:T), T-Mobile US (NASDAQ:TMUS), and Sprint (NYSE:S) — and sector?

Verizon

AT&T

T-Mobile

Sprint

Sector

Year-to-Date Return

-3.27%

-4.75%

-2.97%

-16.1%

-2.66%

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 another strong quarter of earnings. The stock has been pulling back in recent times and is currently trading sideways. 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 a relative year-to-date performance leader. Look for Verizon to OUTPERFORM.

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