With shares of Verizon (NYSE:VZ) trading around $50, 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. As consumers and companies strive to communicate at increasing rates, Verizon stands to see a rising profits as a main provider. Look for rising communications, information, and entertainment to drive profits for Verizon.
T = Technicals on the Stock Chart are Strong
Verizon stock has broken above a key price level that extended back to the early 2000s. The stock is now consolidating a bit so it may need a little time before it really gets going. 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 rising key averages which signal neutral to bullish price action in the near-term.
(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 | 22.56% | 80% | 79% |
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.
Best Cheap Stocks For 2014Put IV Skew | Call IV Skew | |
| July Options | Steep | Average |
| August 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 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | 15.25% | -107.21% | 14.29% | 12.28% |
| Revenue Growth (Y-O-Y) | 4.17% | 5.66% | 3.92% | 3.69% |
| Earnings Reaction | 2.76% | 0.58% | 2.37% | -2.94% |
Verizon has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been upbeat about 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 (NYSE:TMUS), Sprint Nextel (NYSE:S), and sector?
| Verizon | AT&T | T-Mobile | Sprint Nextel | Sector | |
| Year-to-Date Return | 15.65% | 4.60% | 23.99% | 11.90% | 15.82% |
Verizon has been a relative performance leader, year-to-date.
Conclusion
Verizon provides communications products and services at growing rates to consumers and companies worldwide. The stock has recently broken above key price levels and is now consolidating so it may need time before it moves higher. Over the last four quarters, investors in the company have been upbeat as earnings and revenue figures have been improving. Relative to its peers and sector, Verizon has been a year-to-date performance leader. Look for Verizon to continue to OUTPERFORM.
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