Verizon, Charter Trend Higher In Past Month: Are They Buys Now?

Key Points

• The S&P communications sector has been the leader in the past month, with a gain of 13.40%.
• Verizon, one of the sector's most heavily weighted stocks, s up 4.19% in the past month and 9.85% in the past three months.
• Verizon's dividend yield is 6.3%, and it has an 18-year history of increasing dividends.
• Industry peer charter has struggled recently after missing Q4 earnings and sales views. 

The communications industry is showing signs of life, as large caps, including Verizon Communications Inc. NYSE: VZ and Charter Communications Inc. NASDAQ: CHTR, are posting strong one-month uptrends. 

The two stocks are components of the Communication Services Select Sector SPDR Fund NYSEARCA: XLC, which tracks its namesake S&P sector. That ETF has been the biggest gainer on a one-month basis, advancing +13.40%. 

Verizon,  a component of the Dow Jones Industrial Average, as well as being the S&P communications sector’s fourth most heavily weighted stock, is up 4.19% in the past month and 9.85% in the past three months. 

Verizon reported its fourth quarter on January 24, with earnings coming in at  $1.19 a share, down 11% from the year-earlier quarter. Revenue was $35.3 billion, an increase of 3%. 

Those earnings missed analysts’ expectations by a penny while topping revenue views, according to data compiled by MarketBeat.

The company happened to report on a day when a trading interruption caused a temporary halt on the New York Stock Exchange. The NYSE attributed the glitch to “manual error.” 

While it eventually got sorted out, Verizon probably didn’t see exactly the same kind of trading it normally would, in the minutes and hours following an earnings report. Nonetheless, the stock settled 1.99% higher for the session and is up 3.58% in the past week.

For 2023, the company said it expects total wireless service revenue growth ranging from 2.5% to 4.5%. It expects adjusted earnings per share between $4.55 and $4.85.

Disappointing Guidance, But Also Reason For Optimism?

That guidance was disappointing to some analysts, although there was also reason to be optimistic. For example, the company said it expects capital spending to reduce significantly this year, as Verizon reaches the end of its incremental C-band spending. According to Verizon, C-Band technologies significantly expand the availability of higher-performance 5G connectivity. In the earnings conference call, CEO Hans Vestburg said that this reduction in capital spending “will be a tailwind for free cash flow.”

While established large companies like Verizon don’t typically offer the red-hot growth opportunities of younger techs and other growth stocks, at least in a bull market, Verizon’s dividend yield of 6.33% makes it an attractive candidate for investors seeking income. The company has a track record of growing its dividend for 18 years.

Meanwhile, communications industry peer Charter Communications is posting even stronger growth since rallying from a December 19 low. 

The stock had already begun a rally ahead of its fourth-quarter report on January 27. MarketBeat earnings data show net income of $7.69 per share, which missed Wall Street views. Revenue of $13.67 billion also came in below expectations. 

Shares are down 5.82% since the report. 

The company said the number of residential Internet customers increased, albeit at a slower rate than in the year-earlier quarter. The number of residential wireline voice customers decreased at a faster rate. It said during the fourth quarter, it added 615,000 mobile lines, compared to additions of 380,000 in the fourth quarter of 2021. Its Spectrum Mobile service is available to all new and existing Spectrum Internet customers.

Struggling To Gain Traction

Charter has had a difficult time gaining much traction during two separate rally attempts since October, as you can see on its chart. On January 27, shortly after the market opened, Charter briefly passed resistance above $403, but quickly reversed lower. 

You’ll see that the stock is simply moving up, hitting resistance, then trading lower, so there’s not really a discernable pattern at this point. 

With a market capitalization of $64.74 billion, Charter is less than half the size of Verizon, whose market cap stands at $173.24 billion. While Charter is less volatile than the broader market, its recent performance has been more volatile tan Verizon’s. 

At this juncture, while both have notched strong gains, it may be prudent to wait until these stocks stage more substantial rallies before jumping in. Verizon’s dividend status may be a draw for income investors, but the stock performance has a way to go before it’s in buy range.

In addition, investors who own an S&P index fund already have exposure to both Verizon and Charter, so if that’s you, you’re already capturing their performance.