There are a couple interesting things in the news for Verizon (VZ). The long-term and possibly complicated sale of Vodaphone's (VOD) stake in Verizon Wireless and the company's attempted shakeup of how it pays fees to media companies in its television division are at the forefront of the news. Both of these could be benefits for the giant telecom company. There could be benefits for shareholders as well as lower margin costs for the company.
Vodaphone Selling Verizon Wireless Shares?
There are two possible outcomes for Vodaphone.
Vodaphone should sell its stake in Verizon Wireless - If this happens, the success of Verizon Wireless will culminate in a huge tax bill for Vodaphone. Shareholders are the ones who will suffer with billions in taxes stolen away from the value of the company. So this is unlikely.
Vodaphone should sell itself - If a sale needs to take place it just makes sense that Vodaphone should sell itself outright and avoid the huge tax bill to shareholders.
The best asset that Vodaphone has is its 45% stake in Verizon Wireless and it has done well without management's involvement. John Hempton, an analyst at Bronte Capital, blasts Vodaphone management's track record saying:
"Vodafone has - for the last decade or so - been a collection of modest success and abject failures - made good by one spectacular success. The spectacular success is that they own 45% of Verizon Wireless - the best performing wireless carrier in the US."
Considering that Vodaphone is the third largest position that Bronte Capital has, the hedge fund has an invested interest in the profitability of the company. Evidently the sale of Verizon Wireless, does not sit well with the capital group because their perception of Vodaphone management's ability to run the company profitably is very minimal. Management's track record does not look that good besides the investment in Verizon Wireless. And then the success of Verizon Wireless is no reflection upon Vodaphone management's abilities either.
Bank of America (Merrill Lynch) analyst David Barden believes the sale of Vodaphone to Verizon could take place in a drawn out complicated three-way investment which would include: Vodaphone, Verizon and AT&T (T). Evidently Verizon is not interested in all of Vodaphone assets but AT&T could be looking at the company's non-US assets which would add to its "global vision." Mr. Barden is skeptical that a Verizon deal for all of Vodaphone could take place without the help of AT&T but even then it is going to be a drawn out long-term sales process.
If this does take place it will be a long-term influence on Verizon stock. I believe as we learn more and if the sale unfolds investor reaction could be favorable for the company short-term. But this is a long-term complicated sales process and it isn't going to happen in the next 30 days. Therefore I see it as a drawn out influence on the stock if it does take place.
Verizon Finds Ways To Make More Money
As the popularity of mobile devices continue to grow, wireless carriers had to learn to evolve with technology. Data became the popular download instead of phone and texting. For this reason wireless carriers had to learn to adjust and now we have most wireless plans developed around the amount of data that is used and downloaded while carriers like Verizon offer automatic unlimited phone and texting services along with the data plans we buy. After the same manner, Verizon is exploring ways to adjust its pay television business. The company wants to tie the fees it pays to TV channels in proportion to the number of people that actually watch it. So the company is now in direct dialogue with several smaller media companies negotiating fees for channels based upon audience size. This could help Verizon's margins.
(click to enlarge)
Technically Speaking
In terms of a bullish trend, I don't think Verizon can get any stronger as it hugs the upper Bollinger bands which are a sign of a very bullish move. I do not believe it can sustain this level of growth much longer. The RSI indicator is well over bought and has been for well over a week. The MACD indicator appears to have reached a high position and looks like it will pull back. Whether it is just going to move sideways or pull back will be revealed this week; the recent move off the bands has a sideways move with a slight bullishly lean. If it remains this way I believe it is a sign the stock will continue to move up, maybe not at the aggressive rate it has in the last six weeks but I see no sign we are ready for a reversal pattern with the stock.
Verizon continues to do well. The stock is rising and it continues to dangle an attractive dividend in an environment where income investors are looking at dividends as the major source to provide income. If the sale of Verizon Wireless goes to Verizon, shareholders will benefit greatly - if the price is right. Renegotiated pay television services could also offer better margins for Verizon. The latter may not be huge, but every little bit counts when you talk about squeezing margins. I like the direction Verizon is going and I like what I'm seeing here in the near future. The stock continues to be a good buy in my opinion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
