Verizon and the iPhone

Apparently Verizon is about to announce that they will now sell the iPhone for use on their network. Friday was a down day during market hours, but look what happened after hours once the news started to spread.

And we thought that the news was already baked in the price! 


The stock has has quite a run in the last couple of weeks so I wanted to see what the chart could tell us about the current situation. Here are a couple of charts - first with my custom indicators, then with the traditional RSI and MACD.

The stock took a breather in October and November, but December was incredible with a 12% run. Until the after hours action on Friday, it looked like January would bring a correction, but the latest news counteracted the day action. All the indicators are still very bullish but if we remove the after-hours activity on Friday, we can see a strong inflection in the MACD which could have pointed to the beginning a larger correction:

Fibonacci tells us that there is some good support between $32 and $34. The $32 line did serve as strong support in October and November.

What will happen once the announcement is made? What impact will the iPhone have on the company's bottom line? How many users will switch from AT&T to Verizon in search for a better network? Bloomberg has a story estimating that Verizon will sell between 9 and 12 millions iPhone this year. And that 5% of Verizon users will switch to an iPhone - these are good news for Apple. But for Verizon? How much will they subsidize the phone in the first years?


Fundamentally, VZ is trading at a high P/E, and the forward P/E is around 16 which might be a bit high given the projected growth rate for the next 5 years. But these predictions might need to be revised given the latest news.

Of course, VZ offers a new 5% dividend which will support the price. But at this level, I would hold until we get more information from the company on the impact of the iPhone on their numbers.

Recommendation - Hold

Position - None

For what it's worth, Zacks has a 3 rating (Hold) and MSN Scouter has a 9 rating (Buy).


And finally, I found an interesting correlation between Verizon and AT&T this year. These 2 stocks were walking almost in lockstep the entire year up the last week's correction. Will that continue or will see a divergence?