Verizon Communications Inc. (VZ) is nearing a technical breakout that may send it higher by as much as 12% in the coming weeks, based on a recent analysis. The breakout looms as the company is set to report first-quarter results Tuesday before the open of trading. Analysts are looking for earnings to jump more than 17% for the quarter, while revenue is seen rising by nearly 5%.
Shares of Verizon have struggled thus far in 2018 with shares of the stock down by nearly 8%, as the S&P 500 has risen by roughly 1.5%. The underperformance is nothing new for Verizon's stock, with the stock trailing the S&P 500 by 30 percentage points over the past three years.
With Verizon's shares trading around $49, the stock sits below a significant technical downtrend, which has been in place since July 2016. It had appeared that shares had finally broken free of that trend back in December of last year, only for shares to fall sharply at the end of January, as the broader market sold off and after the stock hit resistance at around $54.50. But now, should the stock rise back above the downtrend, it would be a positive for the stock and could send shares higher, retesting resistance at $54.50, an increase of above 11.6%.
Rising Relative Strength
If the stock should fail to break out, the stock could plunge back to the lows around $46, a drop of nearly 6%. But there are reasons to be optimistic, the first being a relative strength index (RSI) with a reading around 51—and trending higher. An RSI level below 30 is an indication of an oversold stock, while a level over 70 is an indication a stock is overbought, the current level puts the stock in neutral territory suggesting there is still room for the stock to continue to rise. It would also appear that the RSI has already broken out of its downtrend, a bullish indication.
Cheap Earnings Multiple
Part of the optimism in the stock could be the outlook for 2018, where analysts see earnings climbing by nearly 21% to $4.51 per share. While shares trade at only 10.5 times 2019 earnings of $4.64 per share, its lowest forward earnings multiple since 2015. Part of the reason for the earnings multiple is that the stock is seen as only growing earnings by 3% in 2019, suggesting that the worst may have already been priced into the stock for 2018 and beyond.
Fundamental Chart data by YCharts
The technical chart suggests that shares of Verizon are nearing a critical technical level, while an 11% return would merely take it back to its 2018 highs, a strong earnings report could take shares even higher.