High-Yield, Deep-Value Verizon Puts In A Bottom

Key Points

• Verizon posted a solid quarter and gave a stable outlook for 2023. 
• The stock is a high yield and a deep value at current price levels. 
• Institutional activity is on the rise and could help drive the stock back to the $45 range. 

Weak outlook or not, the price action in Verizon NYSE: VZ is putting in a bottom. The candle formed in the wake of the Q4 results is strong and confirms a rising level of support even when adjusted for unusual market activity. Coincidentally, Verizon was subject to a trading halt related to improper order execution/routing that resulted in some wicked volatility at the opening of trading.

The takeaway from all this is that, now that trading is back to normal, the market is scooping up this deep-value and high-yielding stock. The bottom line is that Verizon is a blue-chip telecom with a steady and secure business that is fueling a 6.6% dividend yield. Trading at only 7.65X its earnings with growth, albeit slow growth, on the table, this stock is almost too good to pass up. 

The Marketbeat.com analyst tracking page hasn’t picked up any new activity yet, but it is sure to come. Until then, the analysts' sentiment is clear: the group thinks the stock is worth holding and undervalued. The consensus target is running near $48, with the last tracked analysts update in December 2022.

That’s about 23% above the current price action and a substantial opportunity on top of the 6.6% dividend yield. The dividend itself is relatively safe, the company has debt but is managing it well, and the payout ratio of 57% is sustainable. The history of growth stands at 18 years so there is a high expectation for future increases, if not at an accelerated rate. As it is, the 2% CAGR the company is running is about what the market should expect. 

Verizon Outperforms In Q4 

Verizon had a good quarter in Q4 2022, posting the best subscriber numbers in many quarters for post-paid and broadband. The $35.3 billion net revenue is up 3.5% from last year and beat the analysts' consensus by 45 basis points. That’s not a wide margin, to be sure, but it is a sign of strength relative to the consensus figures and is helping to support the price action.

On a segment basis, total wireless grew by 5.9% while broadband grew slower. The only bad news in the Q4 results is that margins were pressured more than expected and left the adjusted EPS at $1.19 or as expected versus the top-line outperformance. 

The guidance is the news that should have the stock moving lower but doesn’t. The guidance calls for revenue growth from 2.5% to 4.5%, with adjusted earnings of $4.55 to $4.95. This compares poorly to the $5.00 Marketbeat.com consensus figure but may not matter in light of the value and yield.

It is becoming increasingly clear that growth is off the table for most S&P 500 companies in 2023. In this light, value and yield may be the only avenue for return, and Verizon has both. 

Coincidentally, the institutions have been gobbling up this stock over the last 12 months. The group has sold more than $8 billion worth of the stock but bought nearly twice that much for a difference of $7.7 billion.

That’s worth more than 4.5% of the company at the post-release price levels and has their holdings up to over 60%. If this trend continues, it is unlikely that Verizon shares will fall much farther than the recent lows near $35 and it will most likely begin trending higher. If the market generally gets a reason to want value and yield again, this stock could sustain a rally. 

The Technical Outlook: Verizon Is At The Bottom

The price action in Verizon shares was under pressure for the last 2 years, but that is over. The stock hit bottom in October 2022, which is confirmed with today’s action. The price action is showing a rising level of support that points to increased bullishness and a possibility of upward price movement. The next big hurdle is the 150-day EMA, if this market can get above that level a move up into the $45 to $50 and in line with the analysts' consensus will be possible.