Finding value in Verizon (VZ)

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Verizon Communications Inc. (NYSE:VZ) shares have more going for them besides the upcoming Verizon iPhone match with Apple Inc. (NASDAQ:AAPL).  After digging into the technicals that make up Verizon's valuation, we believe there is value and the analysts are getting on board.

The Quick & Dirty: Verizon has more than the iPhone going for them, add that to the fire combined with the underlying technicals and Wall Street analyst take means this stock could run at least another 13% higher in the coming months.

TECHNICAL VIEW
vzIt seems that shares of Verizon Communications Inc. (VZ) could possibly be unwinding after the strong run up in stock price from $26 in July 2010 to the current levels of in the mid $35 range.  In reviewing the stock chart for Verizon, we see that January has produced one of the heaviest volume months in some time for the company, although the move on the stock has been down.  That can be a sign that mutual funds are beginning to take some profits on their positions.  In fact, checking the recent volume, we see that in the last 5 days of trading about 24.5 million shares traded hands on average, up about 32% from the 100-day average of 18.6M.  That is a noticeable stock volume difference for a company that trades like Verizon.

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In reviewing the company’s ratios, we see the price-to-earnings multiple for Verizon is 39.6, and is pretty significantly higher than the S&P 500 average of 19.7.  That does not bode well for the stock being a good value for investors.  Something that may help justify the stock price is the price-to-sales ratio of 0.95, which is lower than the S&P 500’s average of 2.18.  This implies the company has very strong sales to support the stock price. 
 
ANALYST VIEW
Last week RBC Capital increased their price target on Verizon (VZ) shares from $35 to $39.  JPMorgan (JPM) initiated coverage on shares of Verizon last week and set a "Neutral" rating on the stock.  Earlier last month the almighty Goldman Sachs (GS) set a $42 price target and upgraded Verizon to a "Buy".  Today Verizon shares are trading around $36.26 a share, thus in the next 12 months if we go middle of the road with a $41 price target that implies a 13% return.

CO. Current Price Price Target % Change
VZ  $         36.26  $        39.00 7.6%
VZ  $         36.26  $        41.00 13.1%
VZ  $         36.26  $        42.00 15.8%

VERIZON ENTERS THE CLOUD
Verizon just spent $1.4 billion for Terremark to strengthen its presence in the cloud computing market place by significantly adding to the size of its own storage place in the Web.  David Linthicum from InfoWorld.com said the following regarding the Verizon/Terremark deal:
Most large telecommunication companies are just too slow to make it to the cloud themselves by the time the market peaks, so buying their way into a market is always a safer choice. However, I suspect many big telecom companies moving to the cloud will find there is more to cloud computing than providing managed services that are just renamed "cloud services." The level of sophistication in true cloud services will rise quickly in the next year or so, and those just pushing infrastructure connected to big networks will find they are a commodity.

VERIZON TO BENEFIT
A positive look for the stock is its relative strength and momentum.  Over the last 3 months, the stock has gained +9.70%, earning a relative strength of 58 which is decent considering the overall size of Verizon as a company with a $102.37 billion market cap.  Keep in mind in the past 12 months, Verizon's stock price has appreciated a very respectable 30% for investors.
 
The company’s earnings estimates have been bouncing around a bit lately since in the last 30 days, analysts were projecting earnings of $0.53 per share.  Then, 7 days ago it was projected at $0.51 and currently it is higher at $0.52.  Verizon is even in terms of earnings surprises and disappointments as it has surprised twice and disappointed twice in the past 5 quarters.
 
Good luck to Verizon investors.  Volume suggests the stock may be unwinding a bit, but stranger things have happened.  Verizon has some great prospects to look forward to with Terremark and the iPhone, now may be the time to continue to bank coin on the company's momentum.

Disclaimer: No authors of WallStNation.com have any positions in any of the securities mentioned in this publication.

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