Verizon (VZ) Trading Higher After Beating Estimates

Dow component Verizon Communications Inc. (VZ) is trading higher after the company reported earnings per share (EPS) of $1.18, beating second quarter 2020 estimates by $0.03. Revenues of $30.4 billion marked a 5.2% year-over-year decline but also beat expectations, which have ratcheted down due to the impact of the COVID-19 pandemic. The telecommunications giant reaffirmed modest fiscal year 2020 revenue guidance, undermined by significant declines in wireless equipment income due to "limited in-store engagement."

Key Takeaways

  • Verizon beat top- and bottom-line estimates.
  • The stock has struggled to post gains since 2018.
  • The high dividend yield has attracted income-seeking shareholders.

This traditional slow mover has been running in place since the fourth quarter of 2018, spending most of that time oscillating in the mid-$50s. The hefty 4.40% forward dividend yield has helped shareholders sleep at night, especially through 2020 pandemic-driven gyrations. However, accumulation has deteriorated in recent months, with investors rotating into growth plays that lost value in the first quarter decline. This could keep pressure on Verizon stock for the rest of the year. 

Wall Street currently rates Verizon as a "Moderate Buy" based upon three "Buy" and seven "Hold" recommendations. None of the analysts recommend that shareholders sell their positions at this time and hit the sidelines. Price targets range from a low of $57 to a Street high of $70, while the stock is now trading about $1 below the low target. This placement bodes well for renewed upside into the median target of $61.

A price target is an analyst's projection of a security's future price. Price targets can pertain to all types of securities, from complex investment products to stocks and bonds. When setting a stock's price target, an analyst is trying to determine what the stock is worth and where the price will be in 12 or 18 months. Ultimately, price targets depend on the valuation of the company that's issuing the stock.

Verizon Communications Long-Term Chart (2000 – 2020)

Long-term chart showing the share price performance of Verizon Communications Inc. (VZ)

A multi-year uptrend posted an all-time high at $64.75 in the fourth quarter of 1999 and gave way to a complex downtrend that found support in the mid-$20s in 2002. A rapid advance into the upper $30s stalled at year end, establishing in a resistance level that was finally mounted in the third quarter of 2007. The breakout failed in January 2008, generating a decline that accelerated during the economic collapse before bottoming out at a 16-year low in the lower $20s.

The stock completed a round trip into the 2007 high in 2012 and broke out, entering a healthy advance that stalled in the mid-$50s in 2013. Price action has carved a series of nominally higher highs since that time, culminating in a 20-year high less than three points below 1999 resistance in December 2019. It fell to a 21-month low in March 2020 and bounced strongly, settling into the mid-$50s in the third quarter.

Verizon Communications Short-Term Chart (2017 – 2020)

Short-term chart showing the share price performance of Verizon Communications Inc. (VZ)

The 2018 buying wave mounted the .786 Fibonacci retracement of the nine-year decline, raising the odds that price would eventually complete a 100% retracement into the mid-$60s. However, it has been testing the .786 level for the past 21 months, grinding through a holding pattern that shows no signs of yielding a sustained trend, higher or lower. The stock has now settled at the .50 retracement of the first quarter swoon, also indicating a balance between bull and bear power.

The on-balance volume (OBV) accumulation-distribution indicator posted a six-year high at the end of 2019 and entered a distribution wave that reached the lowest low since August 2018 in May. OBV has barely budged in the past two months, but Friday's buy-the-news reaction could improve weak sentiment, perhaps generating an uptick into the low $60s. Even so, committed buyers need to open positions soon or risk a gravity-driven downturn.

On-balance volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price. Joseph Granville first developed the OBV metric in the 1963 book Granville's New Key to Stock Market Profits.

The Bottom Line

Verizon stock is trading higher after the communications giant beat top- and bottom-line estimates in its latest earnings report, but upside and downside potential look limited at this time.

Disclosure: The author held Verizon shares in a family account at the time of publication.

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