Verizon (VZ) to Hold
Verizon reported earnings that missed estimates this morning. Revenues fell 4.5% year-over-year, due to a net subscriber loss. However, the decline was smaller than expected, as subscriber numbers started to recover mid-quarter after Verizon re-introduced unlimited data plans.
Adjusted earnings per share missed estimates though, falling to $0.95, versus analysts’ $0.98 estimate.
The stock opened about 2% lower this morning, but has been rising since and is currently trading around where the stock found support in February. Long-term, VZ is in a choppy sideways trend, and today’s move doesn’t look hugely significant technically. Still, I’ll put the stock on Hold for now, and give it a few days to stabilize. If you’re looking to start a position, check back in a few days.
Sell U.S. Bancorp (USB)
U.S. Bancorp, on the other hand, reported estimate-beating earnings, but I recommend selling today because the stock’s technical action is simply lousy.
USB is seven weeks into a relentless downtrend. The bank reported strong first-quarter earnings yesterday morning, but after opening slightly higher, the stock resumed its decline, ending the day down 0.22%. While the headline numbers beat estimates, some of management’s 2017 expectations disappointed analysts.
EPS grew 7.9% year-over-year, to $0.82, beating analysts’ average estimate by two cents. Revenue of $5.32 billion also beat analysts’ $5.29 estimate. The major contributors to growth were loan growth and higher fee-based revenue from payment services, investment management and mortgage banking.
Return on equity improved to 13.3%, despite a quarter-over-quarter decline in net interest margins.
However, while first-quarter results were excellent, the rest of the year may not be so sunny. Loan growth is slowing because of changes in the housing, auto and commercial lending markets. Commercial loan growth slowed in the first quarter, due to a combination of borrowers turning to the capital markets (instead of bank lenders) and companies holding off on investment until the tax and regulatory environment is more clear. Management expects it to improve in the second half of 2017, but by then, auto and mortgage loan growth may be slowing, after several years of rapid improvement in the housing and auto markets.
Management had originally been hoping for 6% to 8% loan growth this year, but after the first quarter, they’ve revised their expectations down to the mid-single digits.
In addition, management expects their efficiency ratio has plateaued for now. And net interest margins should expand in the second quarter, but only slightly.
Most importantly, there’s the stock’s technical action: USB has closed lower in each of the past seven weeks. The stock is still above its 200-day moving average, but that’s outweighed by sell signals, including the stock’s high-volume break through its 50-day moving average in March, and the slide through 50 (where USB found support in January) over the past few days.
USB may have beat expectations this quarter, but markets are forward-looking, and they don’t like what they see coming. I recommend selling U.S. Bancorp (USB) today.