What Stops a Major Rally in Verizon Stock?

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Verizon Stock (NYSE: VZ), which is currently trading at just under $ 56 per share, is still 9% below levels seen in early 2020 and 4% below levels seen in February 2020, just before the coronavirus crisis. VZ stock is up 11% from its March 2020 low of $ 50, compared to the S&P 500’s more than 90% jump from its lows. The stock underperformed the market as the stock’s fall in the first place during the pandemic was far less than that of the market as a whole. Verizon stocks held up well during the downturn, as its business was not as affected as most other industries. This was reflected in the 2.2% growth in its wireless service revenues in 2020, which is the most important revenue segment for Verizon. The segment contributed $ 16.7 billion to total revenues of $ 34.7 billion in the fourth quarter of 2020. Wireless service revenues are expected to grow an additional 3% in 2021, thanks to bundles unlimited more expensive. The company’s plan to add homes and businesses at a faster rate to its 5G network in the coming quarters is likely to spur healthy growth in the wireless services industry. Verizon plans to provide 5G service to 15 million homes in the United States by the end of 2021. Thus, anticipation of a faster 5G expansion and growth in wireless business has resulted in a increase in stock in recent months. Continued growth will likely lead to a 10% increase in the stock. However, Verizon is still far behind its close rivals in adding new postpaid phone customers (the most valuable for a telecommunications company). To put it in perspective, Verizon added 279,000 new postpaid phone customers in Q4 2020, well below that of AT&T
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800,000 and 824,000 from T-Mobile. With Verizon lagging behind its close rivals, we don’t think there will be a major rise of more than 10% in the company’s shares in the near term. Our conclusion is based on the detailed comparison on Performance of Verizon stocks during the current crisis versus the 2008 recession in our dashboard analysis.

Coronavirus crisis 2020

Timeline of the 2020 crisis so far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 01/31/2020: WHO declares global health emergency.
  • 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
  • 03/23/2020: S&P 500 34% drop from the peak level seen on February 19, 2020, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices collapse in mid-March amid Saudi-led price war
  • Since 03/24/2020: S&P 500 recovers 90% from lows seen on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.

In contrast, here is how Verizon and the broader market fared during the 2007/2008 crisis.

Timeline of the 2007-08 crisis

  • 01/10/2007: Approximate pre-crisis peak of the S&P 500 index
  • 09/01/2008 – 10/01/2008: Accelerated market decline corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: Approximate low point of the S&P 500 index
  • 12/31/2009: Initial recovery to pre-accelerated decline levels (around 9/1/2008)

Performance of Verizon and the S&P 500 during the 2007-08 Crisis

The stock of VZ fell from levels of nearly $ 42 in September 2007 (pre-crisis peak) to levels of just under $ 27 in March 2009 (as markets bottomed out), this which implies that the VZ stock has lost 37% from its approximate pre-crisis peak. It recovered from the 2008 crisis, to levels of around $ 31 in early 2010, increasing 16% between March 2009 and January 2010. By comparison, the S&P 500 index fell 51% and s ‘is straightened by 48%.

Verizon fundamentals over the past few years

Verizon revenue grew by 2%, from $ 126 billion in 2017 to $ 128.3 billion in 2020, mainly thanks to subscriber additions. Despite modest revenue growth, EPS fell from $ 7.37 in 2017 to $ 4.30 in 2020, but this was mainly because EPS was unusually high in 2017 due to an impact on tax benefits. EPS, in fact, has improved from $ 3.76 in 2018 to $ 4.30 in 2020.

Does VZ have enough cash to meet its obligations during the coronavirus crisis?

VZ’s total debt grew from $ 117 billion in 2017 to $ 129 billion at the end of 2020, while its total cash flow grew from $ 2 billion to $ 22 billion during the same period. At the same time, the company’s operating cash flow also increased from $ 24 billion to $ 42 billion during this period. Although debt has grown, the company’s increased generation of CFOs and a strong cash balance should help VZ weather the current crisis.

Conclusion

Phases of the Covid-19 crisis:

  • Beginning to mid-March 2020: Fear of the rapid spread of the coronavirus epidemic is reflected in reality, the number of cases accelerating in the world
  • End of March 2020: social distancing measures + confinements
  • April 2020: Fed stimulus suppresses short-term survival anxiety
  • May-June 2020: Resumption of demand, with a gradual lifting of confinements – no more panic despite a steady increase in the number of cases
  • Since the end of 2020: Weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment

Despite the recent surge in the number of new cases of Covid-19 in the United States, we expect demand to improve (with the lifting of bottlenecks and the expansion of vaccine coverage) to support market expectations. As investors focus on the expected 2021 results, we believe Verizon stock has the potential for modest gains once fears surrounding the Covid epidemic are allayed. But a major rise in the share is not likely, as Verizon still lags its peers (T-Mobile US and AT&T) in terms of customer additions.

5G wireless technology is a hot trend. Which actions to choose? Discover our theme on 5G actions for details.

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