Verizon: Back to Bell Atlantic?
Key Takeaways:
● This stock has not given its investors a single profit in 25 years
● Technicals and Fundamentals showing a floor-level drop ahead
● Compared to its peers….Verizon is just a No-No.
Verizon (VZ) is a company that has its roots stemming from many mergers and acquisitions. Emerging from Bell Atlantic and GTE in 2000, Verizon saw years of annual revenue growth and great expenditures on marketing campaigns. Recently, the glamour of this old telecommunication brand has seen darker shades as it recently recorded its lowest added customer volume in 11 years. In a generation of high-minded and results-oriented youngsters, this company has shown little to no innovation in attracting ages of all kinds.
Examining the financial performance of Verizon, according to data from the company's financial statements, its revenue has been consistently declining over the past few years. In 2019, the company's revenue sat at $131.9 billion but saw a decrease to $128.2 billion in 2020. This clearly spits out financial regression.
One of the main factors that has contributed to Verizon's regression is the increased competition in the telecommunications market. On the 5G race, I think it’s obvious that Verizon is on a heavy snail’s pace as T-Mobile (TMUS) has been ahead and Starlink (TSLA) is a recently identified threat.
What’s more sad is the possibility that whoever is reading this right now was once a Verizon subscriber but isn't anymore. Furthermore, the COVID-19 pandemic has had a significant impact on Verizon's performance. The pandemic lead to a decrease in demand for the company's services, as people were fed up with the recurrent outages and chose to seek cheaper and more reliable providers.
The performance of their stock has been subpar for over 25 years and honestly, doesn't look like it has any light at the end of whatever tunnel it's in.
Let's take a look at some analysis.
(Source: usinflationcalculator.com)
The Verizon stock as of April 1, 1991, was worth $46.70 and is just worth $38.59 today. Technically this means that if you had invested in this stock 30 years ago, you would have made NO money. Yeah, that’s right, not a single dollar even with dividends reinvested. With an average inflation rate of 2.47% and cumulative inflation of 51.79%, you've lost $20 a share of inflation erosion on this trade.
The fact is they pay a strong dividend. That's true, and they've never suspended their dividends, also true.
(Image: Personal IB market charts)
On a 30-year chart, as we have here, we can see a higher high which formed in 1999 right before the crash with a lower low in 2008, followed by the next lower high which formed in 2020. I project this is now range bound to a target low of $22 a share.
● It's red in the cz chart (chop zone) and it flipped that way when everything else started to slide during 2021.
● RSI monthly shows it’s not oversold, the institutional direction has now turned and this is being laid down to gentle slumber.
(Image: Personal IB market charts)
I’m expecting the RSI to still hit its historic low and drag the price of this tattered, ragged paper over the next several months or years, till it hits $32 a share which is top of the emerging range.
(Image: Personal IB market charts)
So correlating the 30-year track record that has seen RSI this low one other time and that was at the bottoming process of the dot-com sell-off. But is this the same company it was back then or are we looking at Sears in an era where Starlink is the new Amazon (AMZN) and T Mobile is TJ Maxx (TJX)?
(Image: Personal IB market charts)
● Six down months out of seven, then a paltry rebound to a key moving average, rejected, and then slid into one of the funkiest outside candlewicks I’ve seen in hot minute from a “safety stock,” indicating some true option trades were made to save someone’s backside.
● Rolling Eve top, 41% peak to trough from December 2020 high, all the way down to the hangover space it’s in now.
● Trend is likely to continue as the unwinding is anemic and you can tell large swaths of positioning has to be wound down in time intervals during quarterly rebalancing.
Verizon, a supposed safety stock? A flight to safety like Coke (KO)? This is not a stock that’s supposed to sell off like Amazon and its comparable 57.4% slide of chutes and ladders.
Should’ve walked the hikers trail with Walmart (26.9%) or, Progressive Insurance (17.03%). And so we need to ask the question, why has it started to erode on a technical basis?
Swimming under all the moving averages, embarrassing subscriber growth, and a technical outlook as horrible and muted as their logo, all while this sweet little number is in need of some serious hardware and software upgrades.
The C Suite is a room of stuffed shirts, and they all speak the nasally language of the elite. I want to bet on the company that knows how to street fight still, not a group of philosophers and culture snobs.
Thick candle bodies and sharp down wicks means we’ll keep poking through all the way down, or it will plant a flag in the ground, look for a double bottom to form, and then the real action begins. Keep keen eye for monthly horn pattern around $34.50 for a short term bounce of which case.
But if it has anything like a 12 to 18-month rolling bottoming process as it did throughout 2008 we'd be looking at a trading range bound of between $34 a share up to around $40 a share for the next 18 months or it can have a dramatic sell-off and make new multi-year lows. That's why we wouldn't advise anybody to buy this.
Don't get tricked by the dividends like a carney on the ring toss. Inflation is already here and the dividend has to continue to increase to match the pace with inflation which can’t happen fast enough. Means that the investors that used this as a safe haven ended up moving their money into treasury bonds because the dividend is roughly what bonds pay. From an economic basis, why chose this stock when you could access the risk-free option presented by the treasury?
What this looks like to me is that all of your fixed-income investors and low-risk investors have decided to move their assets away from companies like this and Comcast into treasury notes or other types of bonds that have more lucrative safety.
Factor in an aging and deteriorating network and infrastructure, an inability to attract younger Gen Z subscribers and I wonder, is Verizon now becoming AT&T from the 80s and ’90s?
People want new. Starlink represents that all while the infrastructure guru Bezos is developing his satellite service. Satellite internet will be to Verizon what EV is to combustion engines. I look at their stupid towers and lines and I feel a resemblance to an old wooden oil well from the early 1900’s.
Verizon and Amazon partnered in 2021 developing Project Kuiper (Source: CNBC) which launch 1600 satellites, so at least the scaly, flaky suits at Verizon did a licensing deal, usually the tell tale sign of the imitator, not the innovator. Project Kuiper is expected to have launched by 2026 which leaves Verizon miles behind Starlink which is already offering a $110 subscription to its oversubscribed, saturated customer base.
Does this signify the end for Verizon? Are they going to have to lease satellites from Tesla or Amazon? In either case, they are a lesser carbon copy company. Other wireless companies are eating their lunch while they’re the only person left without a chair when the music is stopping and that’s because they are a large, oafy, company that moves like Baby Hughey and is utterly clueless.
Running out of levers to pull, one drive by their empty store fronts shows the tumbleweed scenario this company now faces. I imagine the executives are praying at their desks, or while on their 8-12 weeks of vacation, nail biting, waiting for the next inflation report, and fed meeting. Sorry champ, not looking for companies on the “hope” program while barracudas are circling you in the tank.
Verizon, you lost 189,000 subscribers (Source: Lightreading) in Q3, 2022. Everyone imagine 200,000 people coming into your stores in 3 short months to tell you that you stink and there’s nothing you can do because they already moved to a different provider. What does that do to morale? This has happened several quarters now! Classic brain drain has taken place and talent is leaving.
A shrinking and aging subscriber base with less disposable income always becomes increasingly value-oriented. Expect decreasing the add-ons, cheaper packages, and an excuse from Verizon blaming the current economic state.. Talk about fighting a multi front war. Add to all that the 23,000 complaints (Source: CNET) that were recorded from customers regarding outages and poor receptibility over Verizon's network and you have the work of simpleton’s starting to emerge. Good luck finding people who are proud to say they work for Verizon anymore, it’s the equivalent of saying you work for Macy’s (sorry Macy’s, no offense) (M).
(Image: Personal IB market charts)
Below on the weekly charts, we can see a Fibonacci retracement from ’08 lows to pandemic high. Short-term, three to six-month time period, target range is $22-31.50 Expect stabilization at the high or a rejection.
(Image: Personal IB market charts)
Based off downtrend analysis, you can see that we are nearing the end short term selloff, unless a catalyst event accelerates timelines. Short of that, expect to have a little bit of reprieve because it became oversold once breaching all the moving averages.
We can see the crossover of MA as price action started hovering around $37, leading to the formation of a support region. This implies a bottoming process that will probably take all the way out until around probably, May or June 2023 and then break down systematically or start a recovery towards $46 a share, but is that worth it? Well, you really can't make the case that it's a safety stock any longer as
● It has already sold off 45%.
● It has a long-term 30-year, technical downtrend.
● It's red on all the zone analysis and is underneath all of its moving averages.
● The RSI is showing that it's not oversold or overbought on the daily, which means it could potentially have more downside and best case scenario that the stock price turns sideways as I put in my short-term range but with a higher probability of turning down over 2023.
Source: Personal IB market charts
On the daily charts, we can see
● False breakouts accompanied by continuous sell-off,
● Multiple down trend indicators
● Oversold RSI
● Continued zone weakness.
This stalwart stock, having the ankle shackles of a high dividend and limited future buyback options, mixed with long-term technical down trends, emerging competitors, talent erosion, and deterioration of fundamentals, this is starting to look a lot more like Sears than a well ran communications company.
Fundamentally, the company and executives have done just enough to satisfy investors by artificially boosting the environmental, social, and governance scores, but not truly keep pace. Factor your inflation over 30 years and this fleabag stock has been a horrific performer. No amount of headline juicing and public relations can account for that. Investors need to take a long hard look at this C Suite and determine if this is a group that can lead to the stock price doubling. I am giving a large resounding NO. This is a tepid stock that's lukewarm which investors will likely spew from their mouths. Why?
● It's got bad fundamentals.
● It's got a deteriorating over-bloated balance sheet.
● It's got an aging network base and a really old executive suite.
● It's got analysts that are all just lukewarm on it.
We would advise against Americans deploying their hard-earned dollars into tepid lukewarm stocks like Verizon.
Their competitor, T-mobile (TMUS), has a market cap of 174 billion and has high price-earnings multiples. So would we rather own T-mobile? No, we want to be away from the communications business entirely. However, its competitor T-Mobile stock resembles more of a defensive like Autozone.
(Image: Personal IB market charts)
Taking a little detour into the T-mobile stock
● Great zone readings
● RSI is not overheated and It's above all of the moving averages.
● It's in an uptrend
● Higher highs and higher lows.
● However look out for double tops forming
(Image: Personal IB market charts)
Fibonacci retracement from COVID lows to its previous high and we can see price finding support along the trendline and a break below in a large market sell-off would give a next stop at $120 and forming an inverse head and shoulders pattern which means you're only looking at a downside risk of around 14%. This means it's in good shape.
(Image: Personal IB market charts)
T-Mobile is better as it reclaimed a larger market cap than Verizon at a market cap of $170 billion versus Verizon at $160 billion. It’s supported by better technical, and larger subscriber increase at 1.8 million in Q4 2022 (Source: t-mobile.com). Expect Verizon will continue to erode, and T-Mobile will turn sideways or increase.
However, I’m not excited about this due to the price earnings multiple, and also in terms of being in the communication space, as I do not feel that that's going to be a great space for the next 12 to 24 months.
Although T-Mobile seems overpriced with its forward earnings (Source: nasdaq.com) at nosebleed levels when compared to Verizons, we should consider T-mobile as better as it's up an impressive +30% above the S&P 500 and has momentum on its side.
In conclusion, Verizon is as spotty as its terrible reception and customer service. With all sides showing and being flanked into a potential sell-off, it’s very important to note that this stock and generally the telecommunications space is a bad space to build an investment plan on right now.