Verizon Communications Inc. Under Pressure And Nearing Key Technical Support
Verizon Communications Inc. (NYSE: VZ) 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 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 an example of a huge company with modest to nonexistent revenue growth that could be relatively range-bound in the long term.
Is Verizon more attractive from a valuation perspective now that the stock has pulled back?
The Bulls' View Of Verizon
The company sports several “cheap” valuation metrics:
- Its enterprise value is far greater than its market capitalization.
- Its price-to-sales is 1.64.
- It has gross (27.53 percent) and net (12.50 percent) profit margins that produce annual positive levered free cash flow of $28.29 billion.
- Verizon pays out a 4.2 percent annual dividend to its shareholders.
- The stock still trades above its uptrend line support, which means it gets the benefit of the doubt until that line fails.
The Bears' View Of Verizon
- Verizon is not cheap at all, with a price-to-book ratio of 13.6 (where three is “fairly valued” in most cases) and a price-to-earnings ratio of just under 14; its estimated revenue and earnings growth for 2015 come in at 2.7 percent and 9.3 percent, respectively.
- Verizon carries high levels of debt when considering its current ratio of 0.86 and its debt-to-equity ratio of 687.26 percent.
- Verizon shares are threatening to break down below the uptrend line at around $48 (Verizon closed Wednesday at $48.75). There also appears to be a “head and shoulders” top formation on the verge of trading to fruition with that same potential break of $48.75.
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.
Verizon could be a great long candidate in the near future.
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