Key Points
Verizon's stock has risen this year after reporting strong results in both Q1 and Q2.
Concerns about rising interest rates, however, have weighed on its valuation recently.
At a low forward earnings multiple, the stock is an incredibly cheap buy right now.
Verizon Communications (NYSE:VZ) stock has been falling since the Federal Reserve raised interest rates last month. In a few weeks, it'll release its quarterly earnings numbers for the third quarter. Although significant earnings growth isn't the norm for the company, a positive performance and outlook could give the stock a much-needed boost, as it has earlier this year.
Plus, Verizon is trading at a very low valuation relative to earnings; expectations may be low heading into the Q3 numbers release. Is it a good idea to buy Verizon stock before Oct. 26, when its latest results come out?
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The stock has risen after reporting earnings this year
When Verizon reported its first two rounds of earnings this year, the stock rallied afterward. Its strong, resilient results gave investors confidence that the business was in solid shape, despite the generally bearish sentiment toward telecom stocks.
It last reported earnings in July and, back then, not only did it post record numbers, but it also raised its full-year guidance. However, Verizon expects just 2.5% to 3% growth for its mobility and broadband service revenue for the full year. Business is OK, but it's not taking off by any means. But that's also what investors would typically expect to see from a company like this, which generally doesn't experience significant volatility.
If Verizon has another strong performance in Q3 and raises its guidance yet again, it could indeed give the stock another post-earnings boost.
Verizon's a top dividend stock to buy right now
The biggest problem for Verizon may ultimately be interest rates. While it has rallied after earnings this year, it has also gone on to fall back down afterward. Concerns about rising interest rates may inevitably weigh down the stock, regardless of how solid its financial results are. Thus, investors should brace for the possibility of further declines, even if the Q3 numbers are good.
The stock is, however, trading at a forward price-to-earnings multiple of less than nine, making it an appealing value buy today. For long-term investors, it may have compelling value, particularly given its attractive 6.2% dividend yield -- well above the S&P 500 average of 1.1%.
It may take some time for the market to become bullish on Verizon's stock, given the outlook for interest rates, but for long-term investors prepared to hang on for five-plus years, it may still be an excellent buy today. Earnings may not send the stock soaring, but given its low valuation and high, sustainable yield, Verizon's still a stock investors may want to consider buying for the long haul.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.