What's on Verizon's Horizon in 2014?

With fewer than six weeks left until New Year's Eve, we're heading into the home stretch of 2013. Telecom giant Verizon Communications' (NYSE: VZ  )  shares have lagged behind its Dow Jones (DJINDICES: ^DJI  ) peers this year, although the gap nearly disappears if you reinvested your dividend checks all year long. The stock is either deeply discounted right now or primed for many years of underwhelming returns.

Does Verizon have any catalysts in store for 2014?

Verizon's biggest booster rocket
Verizon investors are looking forward to one event more than any other. The company is in hot and heavy talks with British peer Vodafone (NASDAQ: VOD  ) to take full control over the Verizon Wireless network. Verizon CEO Fran Shammo recently said that the wireless takeover is on track to close in the first quarter of 2014, assuming that Vodafone shareholders agree and the process works out according to plan.

Verizon would fork over $130 billion in cash and stock to make this happen. For Vodafone, the play would open up a plethora of big investment options such as another global acquisition binge or a shareholder-friendly special dividend of epic proportions.

For Verizon, the transaction would be expensive up front but potentially very rewarding in the long run. Collecting 100% of Verizon Wireless' profits rather than just the old 55% take is a huge structural boost.

Verizon's wireless sales have soared 73% higher over the last five years while wireline revenues slid 19% lower. The profit profile paints an even starker picture of Verizon's true center. Verizon will almost certainly recoup its investment in the Vodafone stake of Verizon Wireless, though it will take a decade or more.

So a smooth closing of the Vodafone deal would be the biggest and brightest positive catalyst on Verizon's horizon in 2014.

Roadblocks and drags
On the flip side, roadblocks to the Vodafone transaction would put a serious damper on Verizon's stock prices next year. But that's not the only potential hazard in sight.

The American wireless sector is changing in front of our eyes, driven by big-ticket consolidation mergers. Sprint (NYSE: S  ) took a massive $37 billion cash infusion from Japanese wireless operator Softbank this summer, then put $3.8 billion of that into buying Clearwire. Meanwhile, T-Mobile USA (NASDAQ: TMUS  ) spun out from German parent company Deutsche Bank and bought MetroPCS for $1.5 billion.

So the American market has been recast, with the smaller players hoping to play a much larger role in the years to come. T-Mobile has already used its newfound autonomy to launch an assault on traditional subsidized smartphone plans, and I can't wait to see what Softbank guru Masayoshi Son plans to do with Sprint in 2014.

Verizon is facing more and stronger competition than ever before. The company needs to stay nimble in the face of strongly capitalized innovators.

Will Verizon ride the Vodafone buyout to new highs in 2014, or will competitive forces overwhelm the wireless profit opportunity? Only time will tell, but it's hard to bet against an industry titan like Verizon. As much as I respect the revamped Sprint and T-Mobile assaults, I just placed a bullish CAPScall on Verizon. The Vodafone agreement should close in the first quarter, which will help Verizon shares beat the Dow in 2014.

What's your best idea for 2014?
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2733445, ~/Articles/ArticleHandler.aspx, 9/30/2016 1:24:24 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,322.06 178.61 0.98%
S&P 500 2,169.90 18.77 0.87%
NASD 5,315.01 45.86 0.87%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 1:09 PM
^DJI $18322.53 Up +179.08 +0.99%
S $6.61 Down -0.05 -0.75%
Sprint CAPS Rating: **
TMUS $47.12 Up +0.66 +1.41%
T-Mobile US CAPS Rating: ***
VOD $29.28 Up +0.16 +0.55%
Vodafone CAPS Rating: ****
VZ $52.25 Up +0.13 +0.24%
Verizon Communicat… CAPS Rating: ****