Sign InSummary
Verizon Communications Inc. may be undervalued due to its low price-to-earnings ratio, and with positive sentiment and an oversold Relative Strength Index, the stock has the potential to gradually increase in value towards the projected target consensus, making it a potentially attractive investment. However, investors should consider the risks associated with the company's involvement in lead-sheathed telephone cables and should closely monitor the upcoming earnings announcement for more concrete indications. (Analysis date: July 18, 2023)
Fundamental Analysis
Verizon Communications Inc. (ticker: VZ), valued at $142.91 billion in market capitalization, closed at $32.27 on July 18, 2023. With a reported earnings per share (EPS) of $5.14, the company exhibits a price-to-earnings (PE) ratio of 6.61, significantly lower than the industry average, suggesting the stock may be undervalued.
Investors are keen on the earnings announcement due on July 25, 2023. The latest average analyst target consensus for VZ is $54.56, with high and low target estimates of $68 and $41, respectively, which imply a significant upside from the current price.
Recent news appears to have affected Verizon's shares. There has been significant concern over the environmental risks and health hazards from lead-sheathed telephone lines. Such concerns prompted a market reaction, pressuring shares of AT&T, Verizon, and Frontier downwards. However, Verizon's stocks have bounced back, marking its best 2-day rally in six years. Investors appear to be regaining confidence in the company, shrugging off the potential implications of lead-clad cables.
Technical Analysis
The Relative Strength Index (RSI) of 22 suggests Verizon is oversold, typically a bullish signal for technical traders. It's worth noting that VZ's current price is below both its 50-day and 200-day moving averages at $35.86 and $37.88, respectively. This usually indicates a bearish signal in the short term.
Meanwhile, the MACD for the past three months is positive at 0.27. However, the combination of RSI, Moving Averages, and MACD lead to a mixed view from a technical standpoint.
Prediction and Evaluation
Given the current price of $32.27, the relatively low PE ratio of 6.61, and the high projected DCF of $34.62, it's suggested that VZ is undervalued, making it a potentially attractive investment. However, investors should keep in mind possible risks related to the company's involvement in lead-sheathed telephone cables.
The next trading day might see slight corrections upwards due to the oversold RSI. Longer-term, over the course of the upcoming week, if positive sentiment holds, it’s possible for the stock price to gradually move upwards towards the DCF indicated level.
Final Recommendation
Considering the oversold state, low P/E ratio, and high DCF value, along with the promising target consensus from analysts, Verizon Communications Inc. is suggested as a Buy. However, investors should factor in the ongoing lead-cable concerns and the potential implications on the company's financial health. Finally, it is of utmost importance for investors to follow the earnings announcement on July 25, 2023, for more concrete indications.
