Verizon: A Stock Position Is Good, But This Kind Of Leverage Even Better

Summary:

• Verizon’s high dividend yield and potential benefit from lower interest rates make it an attractive investment despite slow growth and strong competition.
• VZ’s economic moat is narrow, driven by its dominant position in Wireless and expanding Fiber segment through the Frontier acquisition.
• EPS is projected to grow modestly, with a fair value estimate of $48.86, offering a 22% upside from the current price.
• For sophisticated investors, a diagonal put strategy offers remarkable leverage and some protection, maximizing returns between $40 and $48, with positive returns down to $37.

Investment Thesis

In much the same way as utilities, telecom companies are strongly correlated with interest rates:

• They are capital intensive businesses; with lower interest rates, they will lower their variable interest expenses and those for refinancing

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in VZ over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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