Verizon May Rise 11% to Prices Not Seen in 18 Years

(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of VZ.)

Verizon Communications Inc.'s (VZ) stock has been trending higher since the beginning of May, rising by more than 18%. The stock is now poised to increase by almost 11% from its current price of $54.78 based on technical analysis to prices not seen since the year 2000. (For more, see also: Verizon's Stock Breakout May Lead to 12% Gain.)

Shares of the wireless carrier are also trading at almost their lowest PE multiple since the year 2016. The depressed earnings multiple comes despite analysts looking for significant earnings growth for the rest of 2018.

VZ data by YCharts

Verizon's stock is currently resting at a technical resistance level which dates back to the year 2001 around $54.75. Should the stock rise above resistance it may well be on its way higher to roughly $60.90, an increase of more than 11%. To this point, the stock has been unable to break out but is consolidating. It suggests the stock may be getting ready to make a move higher.

The relative strength index (RSI) has also been rising since mid-March. It suggests bullish momentum has been entering the stock. With the RSI currently around 66, there may be more room for the stock to rise before reaching overbought levels above 70.

Upping Forecasts

One reason for the bullish outlook is the strong earnings growth expected for the balance of 2018. Analysts currently forecast earnings to rise by more than 24% this year to $4.65 per share. The earnings forecasts have increased over the past month, from $4.55 in the middle of July. Revenue is forecast to rise by almost 4% this year to $130.8 billion. Since the middle of July revenue forecasts have increased from $129.4 billion.

Earnings growth is forecast to slow in 2019 to less than 2%, and then rise by 3% in 2020. Meanwhile, revenue is forecast to grow by 1% in both 2019 and 2020.

Shares Are Cheap

The slow earnings and revenue forecasts are one reason why the stock trades at 11.5 times 2019 earnings estimates of $4.74. But currently, shares are also cheap when compared to its historical range. From January 2015 until March of 2018, Verizon would trade within a range of 10.7 to 13.9 times one-year forward earnings estimates.

Fundamental Chart data by YCharts

Investors may be looking to the future for Verizon. The company is beginning to prepare to roll out the fifth generation of wireless technology, also known as 5G. The latest technology is already being tested in a few locations. It promises to bring consumers much faster download speeds for their wireless devices.

All reason enough for investors to get bullish on Verizon, and at the perfect time.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.