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Verizon LONG

by SignalFactory   ·  July 23, 2020 | 07:59:24 UTC  

Verizon LONG

by SignalFactory   ·  July 23, 2020 | 07:59:24 UTC  

Verizon Communications (NYSE: VZ) will report its second-quarter results before the market opens on Friday. Analysts expect to see a coronavirus hit to earnings and revenues at the wireless giant, but for results to hold up much better than for the average S&P 500 company.

Verizon is expected to take a near-term coronavirus hit even though it operates a relatively stable and defensive business.

But Verizon is amid its 5G rollout, it completed its acquisition of a Zoom (NASDAQ: ZM) challenger back in May, and some of its other fundamentals might make it an attractive pick during the pandemic and beyond.

The Quick Story:

Verizon is the largest U.S. wireless carrier by subscribers, just ahead of rival AT&T (NYSE: T). Verizon, AT&T, and T-Mobile (NASDAQ: TMUS) are all currently working to implement and expand their nascent 5G networks. All of the networks are, however, relatively small despite the broader and hyperbolic marketing pitches.

Verizon will nonetheless play a key role in the next generation of high-speed wireless that consumers and businesses have been anticipating for a few years. But the implementation is capital intensive, which might favor Verizon as it hasn’t taken on a ton of debt to fuel expansion into new industries as AT&T has in its push to become a media powerhouse to take on Netflix (NASDAQ: NFLX) and others.

That said, Verizon in May officially closed its deal to buy cloud-based video conferencing firm BlueJeans. The move helps expose the firm to the remote-work space, alongside Microsoft (NASDAQ: MSFT), Zoom, and others that might continue to grow even when the coronavirus is behind us.

And the wireless firm announced in mid-July a collaboration with IBM (IBM) to help enable “the future of the industry in the Fourth Industrial Revolution.”

Other Fundamentals:

Verizon topped our Q1 earnings estimate in late April. But the telecom powerhouse’s revenue dipped 1.6%, as the pandemic impacted its core wireless business. Verizon also lowered its profit guidance and pulled its revenue outlook amid the uncertainty. And Verizon raised its bad-debt reserves to help account for customers who will not be able to pay their bills.

Verizon shares are down roughly 8% in 2020, which looks far better than AT&T’s 23% decline. Verizon has lagged the market’s comeback since March 24, up only 14%. Yet this could give Verizon room to run, while many of the biggest tech names might have a harder time living up to the expectations that their massive coronavirus climbs likely warrant.

Verizon is currently trading at 1.7X sales, which comes in below the S&P 500’s average and its 12-month highs. Furthermore, Verizon’s 4.41% dividend yield crushes the 10-year U.S. Treasury’s 0.61%, the S&P 500’s 1.76% average, and high-yield tech stocks such as Cisco (NASDAQ: CSCO), Broadcom (NASDAQ: AVGO), and HP Inc. (NYSE: HPQ).

Bottom Line:

Zacks estimates call for Verizon’s adjusted second-quarter earnings to fall 5.7% to $1.16 per share on 6.7% lower sales, which looks better than the broader S&P 500’s expected downturn.

Verizon is currently a Zacks Rank #3 (Hold) that has topped quarterly earnings estimates in three out of the last four quarters. Verizon also earns “B” grades for both Value and Growth, alongside an “A” for Momentum in our Style Scores system.

In the end, playing stocks around earnings is never easy and this quarter might be even harder given the coronavirus uncertainty that could further impact guidance.

That said, Verizon stands to grow over the long haul as part of an extremely essential industry. Plus, its dividend yield might be worth the price of admission at the moment, with interest rates sitting at historic lows.

Verizon LONG (Buy)

ENTER AT: 56.71

T.P_1: 58.27

T.P_2: 61.28

T.P_3: 65.92

S.L: 52.94

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