VERIZON STOCK UNDER PRESSURE AND NEARING KEY TECHNICAL SUPPORT

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Verizon Communications stock is still sporting a long-term uptrend line despite its recent relative underperformance versus the broader market. Will it hold support at that line? Verizon Communications
VZ
shareholders have had to endure flat performance this year even as the S&P 500 and Dow Jones Industrial Average have each posted respectable gains. This is clearly an example of a huge company with modest to non-existent revenue growth that could be relatively range-bound in the long-term. With that being the case, if you are long of VZ shares you are either a long-term dividend investor or you are a trader who bought the stock at the lower end of the established trading range. Is Verizon more attractive now from a valuation perspective now that the stock has pulled back? What are the technicals telling us about VZ stock? The bulls' view of Verizon… • The company sports several “cheap” valuation metrics: o Its enterprise value is far greater than its market capitalization o Its price-to-sales is 1.64 • It has gross (27.53%) and net (12.50%) profit margins that produce annual positive levered free cash flow of $28.29 billion. • Verizon pays out a 4.2% annual dividend to its shareholders • VZ stock still trades above its uptrend line support – which means it gets the benefit of the doubt until that line fails. Meanwhile, the bears see Verizon this way… • Verizon is not cheap at all with a price-to-book ratio of 13.6 (where 3 is “fairly valued” in most cases) and a price-to-earnings ratio of just under 14 while its estimated revenue and earnings growth for 2015 come in at 2.7% and 9.3% respectively. • Verizon carries high levels of debt if you consider its current ratio of 0.86 and its debt-to-equity ratio of 687.26%. • VZ shares are threatening to break down below the uptrend line at around $48 (VZ closed Wednesday at $48.75). Additionally, there appears to be a “head and shoulders” top formation on the verge of trading to fruition with that same potential break of $48.75. Technically speaking… Technicians see Verizon as a market laggard with one last hope of holding support before the chart truly breaks down. If the $47.98 level fails to hold up as support, the stock should accelerate to the downside and support at $46 would become the focus. Only a break and close back above $50.30 would put the bears on the defensive. Overall… Verizon may be a great long candidate in the very near future – but not yet. A continued drop down to $46 would be a great entry target for aspiring longs in the VZ space.
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