You Can Definitely Hear Now

Last week we commented on the old market/macroeconomic cliché about GM and the U.S.  We will keep it going with an marketing campaign slogan that reached its heights a few years back, but has been scaled back a bit to avoid being overdone.

Of course we are talking about the infamous slogan from Verizon Communications, Inc. (NYSE – VZ - $49.15), “Can you hear me now?”  In yesterday’s Goldman Guide we mentioned the buy-out of DirecTV (NASDAQ – DTV) by AT&T (NYSE – T) as maybe a bad thing, as it seems AT & T is having difficulty generating organic growth.  Even with that said, the telecom sector enjoyed a moderate bounce yesterday, including VZ.

In addition to being the largest 4G service provider in the U.S., Verizon has grown its international presence with enterprise solutions in IP and networks, and has an aggressive growth strategy in developing products and solutions outside the current realm of consumer wireless applications.  A few examples are partnerships with some automotive manufacturers in state-of-the-art communication systems in new cars, and data service infrastructure systems in healthcare.

VZ looks very attractive from a growth/earnings and growth/price perspective with a forward 12-month P/E ratio under 13 with 6.7% consensus estimate growth for 2014, and a 5-year PEG ratio of just over 2.  Additionally, operating and gross margins of 27% and 63% are comfortably above industry norms in the sector of 16% and 55% respectively.  Finally, the dividend yield of 4% indicates there is some value and security to owning VZ.

VZ is a very bullish stock when viewing the 50-day Daily Moving Average.  Additionally, the put-call ratio is bullish as well at the $55-$60 strike price in July, August, and September.  We think this stock maybe one of the few that run this summer and the $55 range is probably realistic.

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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