Verizon, Charter Trend Higher Last Month: Are They Buying Now?

The communications industry is showing signs of life, including major capital Verizon Communications Inc. (NYSE: VZ) and Charter Communications Inc. (NASDAQ: CHTR), post strong one-month uptrends.

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

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

Verizon reported its fourth quarter on Jan. 24, with earnings of $1.19 per share, down 11% from the prior quarter. Revenue was $35.3 billion, up 3%.

Those earnings beat analysts’ expectations by a penny, while beating revenue, according to data compiled by MarketBeat.

The company accidentally made the announcement on a day when a trading disruption caused the New York Stock Exchange to be temporarily suspended. The NYSE attributed the problem to a “manual error.”

While it ultimately settled, Verizon likely didn’t see quite the same kind of trading as usual in the minutes and hours following the earnings report. Nevertheless, 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 overall wireless revenue growth to range from 2.5% to 4.5%. It expects adjusted earnings per share between $4.55 and $4.85.

Disappointing guidance, but reason for optimism?

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

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

Meanwhile, communications industry peer Charter Communications posted an even stronger rally after rallying from a Dec. 19 low.

The stock had already started a rally ahead of its fourth-quarter report on Jan. 27. MarketBeat earnings data showed net income of $7.69 per share, which missed Wall Street’s outlook. Revenue of $13.67 billion was also below expectations.

Shares fell 5.82% after the report.

The company said the number of home Internet customers increased, although at a slower pace than in the year-earlier quarter. The number of residential cable voice customers is declining at a faster rate. During the fourth quarter, the company added 615,000 mobile lines, compared to adding 380,000 in the fourth quarter of 2021. Its Spectrum Mobile service is available to all new and existing Spectrum Internet customers.

They struggle to gain traction

Charter has had difficulty gaining traction during two separate rally attempts since October, as you can see on its chart. On January 27th, shortly after the market opened, Charter briefly broke above $403, but quickly turned lower.

You’ll see the stock just move up, hit resistance, then trade down, so there’s no really discernible pattern at this point.

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

At this point, even though both posted strong gains, it might be wise to wait until these stocks stage more significant gains before jumping in. Verizon’s dividend status may be attractive to income investors, but the stock’s performance has a long 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.

Before you consider Verizon Communications, you’ll want to hear this.

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