With earnings season in full swing, Garrett Baldwin breaks down why Verizon Communications looks like a cheap stock to buy with a solid dividend. Let's dive into the numbers right now. Following the last two days of rocky moves in the market, momentum remains negative. It might not seem like it after a two-day rebound, but we continue to see various challenges in the S&P 500 and the Russell 2000. Small caps have rebounded nicely today, but it's too soon to tell if we can get a lot more institutional capital off the sidelines.
| | | | | | Verizon Looks Like a Good Value Stock |
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| Dear Reader,
Following the last two days of rocky moves in the market, momentum remains negative. It might not seem like it after a two-day rebound, but we continue to see various challenges in the S&P 500 and the Russell 2000. Small caps have rebounded nicely today, but it's too soon to tell if we can get a lot more institutional capital off the sidelines.
While we look for a reversal and positive turn in momentum, we can start to look at several discounted stocks. At the top of the list, today sits Verizon Communications (VZ).
This week, Chairman and CEO Hans Vestberg issued some very positive news about his company. He said that its strong quarterly earnings report was based on an improving U.S. economy and the acceleration of 5G networks across the world.
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| | | Verizon saw an 11% increase in revenue year-over-year. That figure was boosted by the rapid adoption of 5G from its customers. Vestberg said that 20% of Verizon customers now have a 5G-equipped phone. That figure was well ahead of forecasts issued by the firm last year.
He also said today, VZ customers are pouring into their retail locations at a pace they hadn't seen since 2019.
What to Do Now
Verizon stock has largely been range-bound since the start of 2019. Shares have traded between $50 and $60 for the bulk of two years. Typically, investors would grow frustrated by that sideways action. On the other hand, it's good that the company kicks off a lot of its cash flow to the shareholders. As a result, Verizon pays an attractive dividend of 4.46%.
As Dr. Bauer noted yesterday, we want to look at more than just the PE ratio when considering the stock and its valuation. However, the stock does trade at an attractive PE ratio of just 12.33, which is very good compared to its industry peers compared to its historical PE average.
Yet, we look at an enterprise value to EBIT (earnings before interest and tax) and see a ratio of 13.6. That's a very attractive level compared to the rest of the industry. The median EV-to-EBIT for Verizon's sector is 18.25. If the stock traded in line with its industry peers, Verizon stock would trade at $75.60 per share based on that median valuation multiple.
Upgrades Across the Board
It's also positive when we see Wall Street warming up to a company after some extended time away. Bank of America (BAC) just upgraded the stock to a Buy and set a price target for VZ at $64. Tigress Financial set a price target of $67. Those targets represent respective upside of 13.66% and 18.98% from today's price levels.
As 5G continues its rollout, Verizon looks like one of the best names in the business. We are still in the early innings of this massive transformation fueled by 5G. I like Verizon up to $57.00 per share, and I'd be happy to lock in that dividend. We can expect more buybacks and more future dividend increases as its board puts a big swell of cash flow to work.
Enjoy your Wednesday,
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| | | Garrett Baldwin
Chief Analyst, American Markets
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