Verizon Communications Inc. Stumbles After Lackluster Earnings Report

Verizon Communications Inc. (VZ: sentiment, chart, options) has backpedaled more than 3% this afternoon following its earnings report, in which the firm warned that a slowdown in spending by businesses took a toll on the company's landline unit. The telecom company announced that its quarterly profit came in at $1.24 billion, or 43 cents per share, compared to its year-ago profit of $1.07 billion, or 37 cents. Revenue rose 3.4% to $24.65 billion.

Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group PLC, reported a revenue increase of 12.3% year-over-year to $12.8 billion, partly because of growth in data services like text messaging, email, and Internet access. That helped drive the unit's adjusted operating margin to 47.2%, up from 43.6% a year ago.

Digging deeper into the report, Verizon President and Chief Operating Officer Denny Strigl reported that the firm has sold 1 million units of the BlackBerry Storm, which was introduced in late November as a rival to Apple's iPhone.

Verizon added 1.2 million net new wireless customers in the quarter, bringing its total to 72.1 million, not including those it added through the acquisition of Alltel Corp. (AT), which closed this month. In a sign of a wider industry slowdown as the cellphone market saturates, Verizon added 5.8 million wireless customers for the year, down from 6.9 million in 2007.

From a technical perspective, it's been rough for VZ. The stock is trekking lower under resistance at its 10-day and 20-day moving averages – trendlines VZ has not finished a session above since Jan. 5. The equity is currently hovering in the 30 region.

From a longer-term perspective, the security has been trapped in a steep downtrend since October 2007. In fact, the equity has been guided lower under resistance at its 10-month moving average since January 2008.

Heading into the earnings report, it appears that options players were looking for a bounce in the shares. The Schaeffer's put/call open interest ratio for VZ stands at 0.72 in the 6th percentile. This low reading indicates than investors have been more optimistically aligned toward the shares just 6% of the time during the past year.

In today's trading action, we are still seeing a slight preference for call options. The most active front-month option is the February 30 call, with nearly 6,500 contracts changing hands on open interest of 6,057 contracts. The February 32.50 call is also active, with almost 2,700 contracts changing hands on open interest of more than 12,800 contracts.

On the put side, the most active option is the February 30 put, with 5,600 contracts crossing the tape on open interest of 9,600 contracts. The February 27.50 put was also active, with nearly 2,600 contracts trading on open interest of more than 4,600 contracts. Overall, this preference for calls over puts would seem to indicate that investors are still looking for the shares to rally during the next few weeks.

Meanwhile, Wall Street maintain a somewhat dour outlook on the company. According to Zacks, the stock has earned 7 "buy" ratings and 10 "holds." Should the security fail to break out of its current downtrend, there is still ample room for potential downgrades that could weigh on the shares.

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