Is Verizon Communications Inc. (VZ) About to Peak?

Sprint is in the process of evaluating a new bid from DISH Network Corp. (NASDAQ:DISH) after originally agreeing to an offer from Softbank, which included a deal to sell 70% of its shares to Japan’s SoftBank Corp for $20.1 billion. DISH Network Corp. (NASDAQ:DISH) offered to pay $25.5 billion for the whole company. Either version provides Sprint with a cash infusion or access to a bigger balance sheet to compete in the sector.

T-Mobile is in the process of merging with MetroPCS Communications Inc (NYSE:PCS) to make a formidable competitor to the duopoly of AT&T Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ). In addition, at the end of last year it received $2.4 billion in a deal to sale and leaseback cell towers. The more interesting news is that since T-Mobile has been late to the 4G LTE game, Venturebeat reports that it will have a step up on the new 5G technology labeled LTE Advanced. With the newest 4G gear installed, T-Mobile will require a smaller upgrade of infrastructure than those that installed it one to two years ago.

Conclusion

As with most high yielding stocks, Verizon is reaching lofty levels with the stock trading at 16.5x next year’s earnings. Ironically the stock has reached multi-year highs right as the competition is heating up. The dividend has also reached multi-year lows at only 3.9% signaling investors need to tread lightly. While the company has been able to hold capital spending in check lately, the recent movements of Sprint and T-Mobile will pressure Verizon Communications Inc. (NYSE:VZ) back into the arms race. Another sign that the $53 billion in debt provides limited comfort as long as competitors are racing to install the latest technology. After leading the market into 3G and 4G network upgrades, the next technology advancement might be more competitive.

The article Is Verizon About to Peak? originally appeared on Fool.com and is written by Mark Holder.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.