VZ Rallies & CHTR Hits 12-Year Low: Analyzing Earnings & State of Telecom Industry

We're back on Morning Trade Live. [music] Let's take a look at some of the telecom companies that reported earnings this week. We heard from Verizon, Chartered Communications, AT&T, [music] T-Mobile as well. We're seeing them mostly higher this morning. All but Charter Communications [music] off the back of what it had to say. In fact, hitting around a 12-year low this morning [music] following its report. Verizon, however, up 3%. It's getting rewarded for what it had to [music] say. AT&T, T-Mobile saying some nice gains in fact as we're seeing that rotation out of technology into other parts of the market today. But let's go deep inside Verizon and Charter after those companies reported earnings this morning. Joining us now is Jeff Kagan, who's the telecom industry analyst and strategic adviser. Jeff, thanks so much for your time. Very different companies although they work in the same space and very different reactions. So obviously Verizon the big takeaway seems to be the turnaround plan is working for Charter bit of a different story. It's facing competition that's eating into things on the internet the video customers. What did you make of the prince? Um and what did you like from what you heard here? >> Well good morning Sam. Um I've been watching this space as an analyst for the past 40 years. I have watched it go through periods of wild growth and periods of soft and struggling for growth over and over and over again. We we've been through this before. Um so just because some of [snorts] the companies are not showing vibrant growth right now doesn't mean that they won't tomorrow. Then again, some of the companies that are showing vibrant growth today doesn't mean that they're going to be doing that on an ongoing basis either. It just comes and goes. So, what we're what we're looking at is Verizon has had a problem for the past more than a decade, maybe closer to two decades. Um, they were on a rapid growth rate, but then they fell off and they were just struggling for years and years and years. They got a new CEO, Dan Schulman. He's doing a good job. you know, it's they're not out of the woods, but they are doing much better than they were doing before he arrived last year. Um, Charter something similar. You know, their performance last year, they lost a lot more than they're losing this year. So, their performance is improving. Now, it's not growing like crazy. So they're not being rewarded for from the stock market, but um the direction that they're heading in is the right direction. But if you pull the camera back, we see massive changes that are going to be occurring in the communications sector. um mass massive changes thanks to technology like AI and thanks to changing technologies that are going to allow customers to use services like what Starlink is doing with with SpaceX is doing with Starlink offering wireless services over satellites instead of over the wireless network. Um, you've got the wireless companies, AT&T, T-Mobile, Verizon, um, starting to offer wireless broadband. So, that's going to be a major competitor to the broadband sector, which comes from the cable television sector and the telephone company sector. So, so different sectors are growing and different sectors are shrinking or they're or they're struggling for growth. So what we're seeing now is Comcast for instance is going to be separating the the slow growing from the fast growing part of the business. That's probably a good move for them to make. They'll probably it'll trigger other companies to do something similar. And what we're going to see is a massive reorganization of wireless, cable television, broadband, you know, all of these different communications technologies um over the course of the next several years. Some companies will be the winners and some companies will be the losers. Some companies will be brand new like like with Starlink when when they jump into the wireless space. Who ever thought of using a satellite to make a wireless call? That's going to be a a a big plus for Starlink, but it's also going to be a challenge because you have to have a direct connection to the satellite above. You can't just use it in your inside of your home. So, you're going to have to have another solution. They're going to have to come up with Wi-Fi for inside of the home. Maybe they're going to acquire a a cable u a wireless company. Maybe they'll acquire a T-Mobile or another company in order to provide wireless service. in addition to their satellite service or maybe Elon Musk will just build his own, you know. So, it's we're still at the early stages of a major transformation of all the different corners of the wireless business. But while the wireless business and the entire telecommunications industry has been slow growing over the past decade or longer, I think we're going to get into a very rapidly growing, rapidly transforming industry over the course of the next 10 years. So while tech wireless and telecommunications used to be exciting and it really hasn't been for the past decade, I think it's going to become a very exciting place over the next decade. Great summary, uh, Jeff, I've got to say, of a huge transition for a very big space and a lot of moving parts. I think we've just got to wait to see how things play out because the takeaway that I've got from all these companies that reported this week were very different things as to what parts of the market they're trying to address right now. But as far as Verizon shares are concerned, as you say, good news for a company that has seen growth very much coming off in recent years as they did lose that market share to some of the competitors. We've got to leave it there. really enjoyed your thoughts. Thanks so much, Jeff Kagan there, telecom industry analyst. Appreciate it. Let's trade Verizon now with Tom White, host of Fast Market. Good morning. Happy Friday, Tom. Uh just walk us through an example trade on this one. >> Yeah, a steady mover here. I think if you look at the uh you know, the report was decent, right? Uh but they raised their uh buyback to $4.5 billion. They had added 184,000 uh prepaid to subscribers. Uh, so it was a good report, but this is one of those slowmoving stocks. It does pay a nice hefty dividend yield of about 6.3% and I think that's the focus for a lot of investors on this name. If you want to own the shares, what type of overlay option strategy can you do to kind of create some additional yield uh on a slowm moving uh stock like this? So, I looked at a cover call strategy here uh where for every hundred shares of stock you buy, you sell an out of the money call to the upside. I just went to the August 21st monthly options that expire in 28 days and sold the 47 call against the long stock position. You're going to pay roughly a debit of $44.50. So, that's going to be um your debit uh and your risk on this trade because the stock could somehow go to zero. So, you got to keep that in mind. It's capital intensive, but it's also your break even to the downside. So, you're buying the shares at a discount because you're selling that upside call. you're getting to collect a dividend uh on this of 6.3% because you own the shares. So, you're creating yield by not only selling that upside call against your long stock uh but then also owning the stock and collecting that dividend. So, as you get closer to expiration over the next month, you'll be able to roll or adjust that short option, creating credits and reducing risk, reducing your break even and increasing potential profitability. So this is a longerterm strategy taking advantage of that the dividend yield uh creating yield by uh not only the dividend but also selling upside calls against your long stock position. I think one of the fears for investors is well I don't want to get my stock taken away. So if the stock rallies above 47 you have assignment risk. Well you can adjust that short strike go up uh to a different strike go higher uh or just roll to that same strike and just extend duration on this type of position. So cover call strategy here that's neutral to bullish. It's a paid to wait type of strategy here Sam uh that allows you to collect that dividend and create some additional yield. >> Thanks so much for that Tom Shares in VZ today getting rewarded off the back of this earnings report what we had to hear. Thanks so much for the example trade and we are looking