Is Verizon Stock a good bet at $ 56?

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Verizon Stock (NYSE: VZ), which currently trades at $ 56 a share, looks like a decent investment opportunity at the moment. The stock is still 8% below the levels seen at the start of 2020 and 3% below the February 2020 level. VZ stock is up 12% from its March 2020 low of $ 50, against the S&P 500 jumped nearly 90% 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 have been resilient during the crisis as their business has not been as badly affected as most other industries. This was reflected in the 2.2% growth in its wireless service revenues in 2020, which is the largest revenue segment for Verizon (contributing $ 16.7 billion to total revenues of 34, $ 7 billion in the fourth quarter of 2020). Wireless service revenues are expected to increase an additional 3% in 2021, thanks to more expensive unlimited plans. The company’s plan to add homes and businesses at a faster rate to its 5G network in the coming quarters is expected to fuel healthy growth in the wireless 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. 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 telephony customers in Q4 2020, far less than AT&T’s 800,000 and T-Mobile’s 824,000. With Verizon lagging behind its close rivals, we don’t think there will be a major rise 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 big central banks’ hopes of monetary easing 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 89% from lows 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 decline in the market 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 nearly $ 42 in September 2007 (pre-crisis peak) to just under $ 27 in March 2009 (as the markets bottomed out), implying that the stock of VZ is down 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. In 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 is 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

In view of the constant decline in the number of new cases of Covid-19 in the United States, we expect demand to improve to support market expectations. As investors focus on the expected results of 2021, 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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