(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of VZ.)
Verizon Communications Inc.'s (VZ) stock has underperformed the broader stock for the past five years rising 20% versus the S&P 500 rise of 52%. But something has changed dramatically over the past few weeks, and Verizon's stock has been steadily rising even during a period of heightening stock market volatility. Technical analysis suggests the stock may increase 7% more in the coming weeks. Should that occur, the stock will be at its highest price in nearly 20 years.
Suddenly investors are focusing and looking to Verizon's future as the company begins to roll out the fifth generation of high-speed wireless technology, also known as 5G. The rollout comes at a time when Verizon's valuation is depressed versus the broader stock market.
The chart shows that stock the stock is nearing a technical breakout should it rise above resistance at $61. If that happens, the stock may go on to reach its highest price since 1999 to roughly $64.50, from its current price of $60.21.
Additionally, the relative strength index has been trending higher since the middle of 2017. It suggests that bullish momentum in the stock has been building for a long time.
The stock is currently trading at a 2019 PE ratio of 12.7, which is well below the S&P 500's PE ratio of approximately 16. The stock is also cheap when compared to itself on a historical basis. Since 2015 the stock's PE multiple has traded in a range of 10 to 14.
Analysts have been steadily increasing their revenue and earnings estimates for the company since July. Analysts have raised their revenue estimates 1% to $132.4 billion for 2019 and 1% in 2020.
Additionally, analysts have been increasing their price targets on the stock by 5% to an average of $58.54 since the end of July.
The new wireless technology will offer consumers much faster download speeds for their mobile phones. Meanwhile, it may also give Verizon the potential to have a more significant part in delivering high-speed data into the home. Perhaps Verizon's move to stay a pure play data provider will prove to be more beneficial then the path some of the company's competitors have taken.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.