Verizon Will Shoot Higher On New U.S. Army Project

Apr.20.12 | About: Verizon Communications (VZ)

When a stock gets oversold, it suggests one thing - sheer imbalance between supply and demand with bias toward the former. Verizon (VZ) has shocked shareholders and prospective investors after slipping into this dreaded territory. All said I have unfaltering convictions that this telecommunication behemoth is packing serious heat under the hood, so to speak. Verizon Communications extends a diversified service package that encompasses various entertainment, communication and informational services to different consumers.

Divided into two segments, the wireless and wireline, this telecommunication heavyweight rests on a market cap of $105.5 billion. Its main competitors are Sprint Nextel (S) and AT&T (T). The latter, however, poses more threat to Verizon. It not only has a bigger market cap ($179 billion), but also spreads its umbrella over a wider field.

Although Sprint is smaller, it should not be overlooked. Verizon is wedged between two aggressive competitors and I believe that the future of its stock is dependent on its tact and strategy in the remaining quarters of this fiscal year. Of all three competitors, it exhibits the highest quarterly growth and earnings per share figures. I believe that this speaks volumes about the future growth of Verizon.

An Exodus from AT&T?

Just recently, the stock market got a whiff of AT&T's failure to push the much anticipated Lumia 900 from Nokia (NYSE:NOK). According to CNET, a visit to the New York stores confirmed this predominating rumor. CNET was welcomed by an unprepared AT&T team that supposedly had little or no insight on the Nokia Lumia 900. In as much as this news is a dreadful wet blanket to AT&T it gives Verizon the much needed edge.

I believe that shareholders will lose faith in AT&T and cross borders to Verizon. AT&T has outpaced Verizon's subscriber growth in the cable market in the latest reportable quarter. However, AT&T's phyrric victory is due to Verizon's continued build-out of its FiOS all-fiber network. Verizon still has more total subscribers (4.8 million) versus AT&T (3.8 million). Once investors see that consumers prefer Verizon's superior offerings they will follow into the stock as revenue increases. In the same breath, Verizon has doubled its efforts, and I foresee an increased faith in its stock. Apart from the inevitable increase in demand, the market will also signal a green light to Verizon, allowing it to venture into more rewarding investments and projects. From my own knowledge, accommodating more risks inevitably increases share value as anticipation pushes the market to the edge of its seat.

Some other shred of news that may equally prove of help in enhancing Verizon's share value is the recent revelation of Verizon's role in steering the U.S army toward cloud computing. This move comes at the wake of an increased need for a secure and cost-effective network platform for the U.S. army. Officials say that the current economy is sluggish and the need for an overhaul of cost effectiveness cannot be overstated.

The multiple contract deal is estimated to pool a host of awardees who will all have a stake on the $249 million project. Considering the decisive role that Verizon plays in this project, I presume that it is going to bring in a reasonable amount of revenue from the deal, which will further strengthen Verizon's position.

The fact that the government opted for Verizon is a crystal-clear indication of the level of confidence that the authorities have vested in the company and speaks of the potent service package at Verizon. If I had a crystal ball, I would say that Verizon has a promising future ahead.

Landline Revenue in Decline

According to recent report findings, there has been an unprecedented plunge in landline revenue throughout the U.S. The United States is the primary market for AT&T and Verizon. Both parties have suffered subscriber losses. It seems as if the first punch landed on Verizon. Its revenue in the landline frontier has fallen by 19% compared with AT&T's 16.5%. Instead of reeling from this Verizon has enhanced its efforts elsewhere to compensate - earlier than AT&T. This is evident from the recent contract to steer the U.S army toward cloud computing. Verizon is the key player that is migrating communications to its private network.

Typically, when the relative strength index level reads below 30, alarm bells ring as the stock is declared oversold. With the relative strength index of Verizon hitting an all-time low of 29.8, a skeptical aura has plagued the Verizon camp. Nonetheless, bullish investors are now looking for entry points as the market is likely to correct itself in the near future. Considering the lustrous future that I predict, Verizon is one stock that I would strongly advocate. It is particularly suited for a canny investor who wants to make a rewarding long-term investment.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in VZ over the next 72 hours.