EVEN THE BULLISH OUTLOOK FOR VERIZON SHARES CALLS FOR SOME SHORT-TERM DOWNSIDE

Verizon Communications VZ stock has rallied nicely off of the October lows – where the stock broke down below its uptrend line support. Now that the stock has seemingly completed five mini waves to the upside, the stock is due to pull back. How far must if fall before the stock is buyable technically? And, do the company's fundamentals justify a renewed push to the upside once support is tested? Let's take a look… What the bulls see in VZ… • A 4.3% annual dividend with a very reasonable 44% payout ratio • Some cheap valuation metrics: o An enterprise value of $315 billion versus a market capitalization of only $212.55 billion o A price to sales ratio of 1.71 • A net profit margin of 15.54% that spins off an annual levered free cash flow of over $22 billion What the bears see in VZ… • A PE of 14 – which seems a bit expensive when compared to the 2015 estimates for growth in revenues and EPS of 2.9% and 10.10% • Lots of debt: o A debt to equity ratio of over 600% o A current ratio of only 0.92 o Cash of $7.85 billion versus total debt of $109.49 billion The technical take on VZ… Technicians note that there appear to be two possible paths for Verizon shares – down a little or down a lot. In the “down a little” scenario, the stock will pull back to the uptrend line support at around $49.29 – which was broken recently and then recaptured by the bulls. If that level of support holds, then VZ could rally back up towards the August high at $53.66. The more bearish scenario is where VZ is in the midst of a wave “c” lower with a downside target of $45.66. That level is the 100% Fibonacci price projection line for the “abc” downside correction and corresponds well with horizontal line support. Overall... At Sea Change, we will be considering purchases of VZ shares at the first support at $49.29 if the stock reaches down to that level.