Year-to-date, Verizon Communications (NYSE:VZ), the largest wireless carrier in the U.S., is up over 12%. The relatively strong recent performance of VZ stock, especially over the past few months, has been based on its healthy fundamentals and I am a firm believer in the long-term story of the company. Yet, on a short-term basis, it would be timely to take your profits.
You may want to consider buying into VZ in late December or early January, prior to its earnings call in the new year.
Here is why …
Short-Term Risks for Verizon Stock
Risks in Revenue Growth: The Achilles heel of Verizon stock is a risk in revenue growth, mainly from Oath — its internet media business — which reported a 6.9% revenue decline in October. Also, the telco giant gave a somewhat subdued outlook for Oath’s future advertising revenues. Many analysts would like to see Verizon divest Oath and concentrate on its core business.
Furthermore, on the 5G front where Verizon is aiming to be the leader, VZ’s organic earnings growth will not possibly materialize until 2020 — after the full mobile 5G launch in 2019. Verizon’s most recent financial results benefited from cost savings measures as well as lower taxes — two factors that have already been baked into the current VZ stock price.
Shorter-Term Technical Analysis: The VZ stock price has increased over 28% over the past 12 months. On Nov. 20, 2018, it saw a 52-week high of $61.58, a year after it saw a 52-week low of $45.50 on Nov. 20, 2017. Verizon’s momentum indicators, which describe the speed at which prices move over a given period, are currently in an extremely overbought territory. Although these indicators can stay overbought for quite a long time, short-term profit taking is probably around the corner.
If you believe in the fundamental bull case for Verizon stock, you might consider waiting for a better time to go long, such as around the mid- to low-$50’s. Expect nearer-term trading in Verizon stock to be choppy at best.
Long-Term Strength of Verizon Stock
Market Capitalization: With a market cap of almost $250 billion, it would be safe to assume that, in case of a stock price decline in the short-term, stock in VZ is unlikely to get held down by the market for too long. The Street tends to regard large market cap companies as good and stable long-term investments. Wireless services constitute Verizon’s core business — accounting for three-fourths of its revenues. In 2017, Verizon generated sales of over $125 billion and as a wireless carrier, it covered about 300 million U.S. residents who showed “strong loyalty” toward the company. Therefore, the long-term positive trend in VZ stock is likely to continue in future years, too.
Dividend Yield: Income investors know that they can compound their returns through reinvesting dividends from high-yielding shares. Verizon has a history of increasing dividends and its current dividend yield is a little over 4%. This is yet another important reason why I believe Verizon shares belong in a capital-growth portfolio. On Nov. 1, Verizon paid a quarterly common stock dividend of 60.25 cents per share; the next dividend announcement is expected in December 2018.
The Bottom Line on VZ Stock
Verizon stock has a strong story and the company has a clean balance sheet with robust cash flows; thus, it remains a long-term growth play on a fundamental basis. However, there might be weakness in the VZ stock price in the near-term that potential investors should anticipate.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.