There is a budding argument that Verizon Communications Inc. (NYSE:VZ) is approaching a potential bubble. In the past six months alone, the stock has trended up 29%. It currently trades close to its 52-week high of $54.31. This growth has stirred the argument that perhaps the stock is approaching a cliff. Indeed, Verizon Communications Inc. (NYSE:VZ)’s stock has gone past its key support points and by the book — and only the book — it needs to be sold. But is this really the case? We will find out later on in the article.
Potential deal remains key driver for growth
The prospects inherent in the possible buyout of Vodafone Group Plc (ADR) (NASDAQ:VOD)’s 45% stake in Verizon Wireless have been one of the key contributory factors behind the rally. On Verizon Communications Inc. (NYSE:VZ)’s part, the deal would provide more traction as far as 4G is concerned. It would also plug the cash drain that goes to Vodafone Group Plc (ADR) (NASDAQ:VOD) through dividends; allowing Verizon to buff up its coffers and accelerate operations.
Despite the bright outlook presented by the deal, discussions are at a stalemate. Why is this so? And more importantly, why isn’t this working against Verizon Communications Inc. (NYSE:VZ)’s share price?
Discussions have been at a stalemate because of diverging opinions that both parties have on the value of the 45% stake at hand. Vodafone Group Plc (ADR) (NASDAQ:VOD) wants $130 billion while Verizon Communications Inc. (NYSE:VZ) is only willing to give $100 billion. The reason why investors are still positive on the possibility of a deal is that many people, including industry specialists, believe that Vodafone will eventually take the $100 billion. Some analysts have even started spending (hypothetically of course) this $100 billion.
Another key reason why the deal is likely to work out is that Vodafone is in need of money. Back in its European backyard, things aren’t as blissful as they once were. Despite its dominance in Europe, it is facing stiff competition from media companies and cable operators; not to mention withering macroeconomics. In view of this, the company has signed off to a deal with Deutsche Telekom AG. The deal, struck earlier in the month, will allow Vodafone to enhance its product offering in broadband and TV. A huge capital injection at this moment will accelerate operations and give Vodafone Group Plc (ADR) (NASDAQ:VOD) an edge in offsetting progress made by competitors.
Vodafone Group Plc (ADR) (NASDAQ:VOD) CEO Vittorio Colao has told The Wall Street Journal that he is still open-minded about a Verizon deal. This comes at the heels of a $7 billion dividend payout that Vodafone received from Verizon Wireless. Vodafone intends to improve its worsening European situation with this cash.