Is Verizon Stock Undervalued?

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Verizon Stock (NYSE:VZ), which is currently trading at less than $52 per share, is still down 16% from levels seen in early 2020 and 11% below February 2020 levels, just before the coronavirus pandemic. VZ stock has gained less than 3% from its March 2020 low of $50, while the S&P 500 has jumped 110% from its low. The stock has underperformed the market because the stock’s decline in the first place during the pandemic was much smaller than the overall market, as its business was not affected like other industries. This was reflected in a 2.2% increase in its wireless service revenue in 2020 (pandemic year), the largest revenue segment for Verizon. Wireless service revenue is expected to grow 3% in 2021, led by higher-priced unlimited plans. The company plans to rapidly add homes and businesses to its 5G network in the coming quarters. Verizon expects to provide 5G service to 15 million homes in the US by the end of 2021. Thus, expectations of rapid 5G expansion and growth in the wireless business have propelled the stock over the past few months. The continued growth is likely to propel the stock a little more than 15% in the near term. Having said that, Verizon still lags behind its closest competitors in adding new postpaid phone customers (the most valuable for a telecom company). Therefore, we do not expect any significant upside in the company’s stock in the near future. Our conclusion is based on a comparative analysis of the performance of Verizon Stock During the 2008 Recession Vs. Now in our dashboard.

2020 coronavirus crisis

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2020 crisis timeline so far:

  • 12/12/2019: First cases of corona virus were reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks help S&P 500 reach record high
  • 3/23/2020: S&P 500 34% falls From the peak level seen on February 19, 2020, as COVID-19 cases outside China accelerated. Oil prices slump in mid-March amid Saudi-led price war doesn’t help
  • From 3/24/2020: S&P 500 110% recovery From the lows seen on March 23, 2020, the Fed’s multi-billion dollar stimulus package kept the economy afloat during a prolonged lockdown and vaccination drive has slowly brought things back to normalcy despite multiple waves of COVID infections. allowed to bring

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

2007-08 Crisis Timeline

  • 10/1/2007: Predicted pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Lower levels predicted by the S&P 500 Index
  • 12/31/2009: Preliminary correction to levels before a quick decline (around 9/1/2008)

Verizon and the S&P 500’s Performance During the 2007-08 Crisis

VZ stock fell from a level close to $42 in September 2007 (the pre-crisis peak) to a level of slightly less than $27 in March 2009 (as the markets bottomed out), meaning that VZ stock fell from its estimated pre-crisis level. The crisis lost 37% from the peak. It peaked at around $31 in early 2010, after the 2008 crisis, an increase of 16% between March 2009 and January 2010. In comparison, the S&P 500 index saw a 51% decline and a 48% recovery.

Verizon’s fundamentals in recent years

Verizon’s revenue grew from $118 billion in 2017 to $128.3 billion in 2020, primarily driven by an increase in the number of customers. Despite a modest increase in revenue, 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 the tax benefit impact. EPS, in fact, increased from $3.76 in 2018 to $4.30 in 2020.

Does VZ have enough cash cushion to meet its obligations during the Corona virus crisis?

VZ’s total debt increased from $3.5 billion in 2017 to $5.9 billion at the end of 2020, while its total cash increased from $2 billion to $22 billion over the same period. Additionally, the company’s cash from operations has also increased from $24 billion to $42 billion. Though debt has increased, the company’s increased CFO generation and a strong cash balance are likely to help VZ weather the current crisis.

Conclusion

Stages of the Covid-19 crisis:

  • Early- to mid-March 2020: Fear turns into a rapidly spreading coronavirus outbreak RealityWith the number of cases increasing rapidly globally
  • From the end of March 2020 onwards: Social distancing measures + lockdown
  • April 2020: Fed stimulus Suppresses near-term survival anxiety
  • May-September 2020: demand recoveryWith the phased lifting of the lockdown – no more panic and the number of cases has come to a standstill
  • October 2020-February 2021: unprecedented spurt in covid cases Forcing a new round of nationwide lockdown
  • From March 2021 onwards: One of the ongoing vaccination campaigns and gradually resuming demand improvement – bullish market sentiment

In view of the steady decline in Number of new covid-19 cases in the US, we expect an improvement in demand to raise market expectations. As investors turn their attention to expected results for 2021 and 2022, we believe Verizon stock has the potential for modest gains once fears about the COVID outbreak are quelled. According to Trefis, Verizon Appraisal That works out to $61 per share.

What if you’re looking for a more balanced portfolio instead? here is one high quality portfolio It has consistently outperformed the market since the end of 2016.

Returns Nov’21 MTD [1] YTD [1] 2017-21 [2]

VZ Return -2%-12% -3%

S&P 500 Returns 1% 22% 105%

Trefis MS Portfolio Returns -3% 46% 297%

[1] Month-to-date and Year-to-date as of 11/29/2021

[2] Cumulative Total Return since 2017

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