Verizon stock ends Wednesday as best performer in Dow Jones index
- Verizon stock closes up 3.28% on Wednesday despite market trading lower.
- Major Frontier Communications investor wants 30% more for acquisition.
- Verizon originally offered $20 billion for Frontier, a major fiber carrier in the US.
- Dow Jones sinks nearly 1% as market braces for high Fed rate environment post-election.
Verizon (VZ) stock was the best performer in the Dow Jones Industrial Average (DJIA) on Wednesday. Shares of the telecom gained 3.28% to close at $42.86.
Verizon’s stock price gained when news broke that Glendon Capital, the largest shareholder of Frontier Communications (FYBR), would vote against Verizon’s acquisition price.
The Dow Jones fell 0.96%, slightly worse than the S&P 500 but much better than the NASDAQ’s 1.60% slide. The market appears to be taking a breather ahead of the presidential election in less than two weeks as many expect a Donald Trump win to mean higher inflation and interest rates. Higher Treasury rates for longer might make US equities less enticing.
Verizon stock news
It all boils down to hedge fund Glendon Capital deciding weeks after the proposal was first floated for Verizon to buy Frontier for $20 billion. Glendon says that the fiber assets owned by Frontier give the firm an enterprise value of $26 billion, about 30% above Verizon’s offer.
The market seemed to like this bit of news as traders don’t want the highly indebted Verizon to take on even more debt. At the end of September, Verizon had about $150 billion in total debt on its balance sheet.
"With the current voting deadline on November 13, shareholders are being deprived of this critical opportunity to understand the standalone case for the Company," Glendon partner Holly Kim Olson wrote in the letter Frontier management. "We find these decisions to be disenfranchising to shareholders."
Glendon is the second largest shareholder of Frontier and owns about 10% of the company.
On Tuesday, Verizon stock slid after the telecom operator posted a revenue miss for Q3. Revenue of $33.3 billion was flat YoY and missed consensus by $120 million.
Verizon earned $1.19 in adjusted EPS as well, and that figure beat consensus on Wall Street by a penny.
Verizon stock forecast
Verizon stock recently had held above prior resistance at $43.00. Shares of the telecom had traded between $38.75 and $43.00 for most of the year until September. After losing the perch earlier this week on the Q3 revenue miss, traders seem eager once again to regain the $43.00 level.
Bulls think a return to the $50s is likely as the US Federal Reserve continues to cut interest rates through much of the next year. Of course, a Trump presidency might mean rates don't fall as far, but they should still fall from here nonetheless. Companies with large debt loads benefit from lower interest rates as they are able to reduce their interest payments.
VZ weekly stock chart
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
