U.S. wireless behemoth Verizon stock (NYSE:VZ) has declined by about 2% year-to-date. Although the stock has considerably outperformed the broader S&P 500 which remains down by about 20% year-to-date, it has lagged peers in the wireless sector such as AT&T and T-Mobile, who have seen their stocks rally by 9% and 19%, respectively, this year so far.
While the markets have been favoring stocks such as wireless carriers with consistent cash flows amid increasing economic uncertainty and rising interest rates, Verizon has been weighed down primarily by mounting competition in the 5G market. Over Q1 2022, Verizon lost a net of 36,000 postpaid phone subscribers – which are typically the most lucrative segment of the wireless business – compared to AT&T and T-Mobile who added 691,000 and 589,000 subscribers respectively over the quarter. Moreover, Verizon’s adjusted EPS over Q1 declined to $1.35 per share, from $1.36 in Q1 2021, on account of its continued spending on network upgrades. Rising inflation is also impacting the company, putting pressure on costs, while possibly limiting the number of customers upgrading to more expensive plans. Moreover, Verizon is highly leveraged, with total debt standing at over $150 billion. This could limit the company’s ability to raise dividends or initiate buybacks, in a rising interest rate environment. Warren Buffet’s Berkshire Hathaway also apparently divested a majority of its stake in Verizon over the first quarter and this could also be putting some pressure on the stock.
We remain neutral on Verizon stock, with a $56 price estimate, which is marginally ahead of the current market price. There are a couple of factors that could drive the stock going forward. Verizon has been rolling out its recently acquired C-band airwaves – which offer wider coverage, along with high speeds and capacity – at a faster than expected pace, and this could help the company with customer acquisition and eventually help it to improve monetization. Verizon has also been moving deeper into the value-end of the wireless market, with its November 2021 acquisition of Tracfone, the largest mobile virtual network operator in the U.S., and this could drive incremental growth. See our analysis on Verizon Valuation : Expensive or Cheap for more details on Verizon’s valuation and how it compares to peers. Also see our analysis on Verizon Revenue: How Does Verizon Make Money.
With inflation rising and the Fed raising interest rates, Verizon has fallen 2% this year. Can it drop more? See how low can Verizon stock go by comparing its decline in previous market crashes. Here is a performance summary of all stocks in previous market crashes