Verizon stock (NYSE:VZ) currently trades at $34 per share, 43% below the levels seen on May 10, 2021 (pre-inflation shock high). Verizon saw its stock trading at around $51 at the end of June 2022, just before the Fed started increasing rates, and has lost about 33% since. In comparison, the S&P 500 gained 18% during this period. Verizon is being impacted by slower growth in the wireless phone space following the easing of Covid-19, while competition has also been mounting with carriers doling out aggressive promotions to add customers. Separately, rising interest rates have also likely made dividend stocks, such as Verizon, a bit less attractive to investors, while also making highly leveraged companies a bit more risky.
Interestingly, Verizon stock has had a Sharpe Ratio of -0.3 since early 2017, well below the 0.6 for the S&P 500 Index over the same period. This also falls short of the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Now, returning to the pre-inflation shock level would mean that Verizon stock will have to gain 75% from here. However, we estimate Verizon’s valuation to be around $41 per share, about 22% ahead of the current market price. While we believe Verizon can expand its earnings, driven by more premium plans and the winding down of its expensive 5G build-out, the stock could see some headwinds due to economic uncertainties. Our detailed analysis of Verizon’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
- Down 50% From Covid Highs, Will Verizon Stock Recover Post Q3 Results?
- Verizon Stock Has Over 60% Upside If It Recovers To Its Pre-Inflation Shock Highs
- Will Verizon’s Postpaid Woes Continue In Q1?
- Verizon Stock Had A Tough 2022. Will Next Year Be Better?
- Will Verizon’s Postpaid Business Continue To Weigh On Its Earnings In Q3?
- Where Is Verizon Stock Headed Post A Tough Q2?
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: An increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers were unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt the supply chain.
- April 2021: Inflation rates cross 4% and increase rapidly
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline
- Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.
In contrast, here’s how Verizon stock and the broader market performed during the 2007/2008 crisis.
Timeline of 2007-08 Crisis
- 10/1/2007: Approximate 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: Approximate bottoming out of S&P 500 index
- 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)
Verizon and S&P 500 Performance During 2007-08 Crisis
Verizon stock declined from a little over $42 in September 2007 to just $27 as of March 2009 (as the markets bottomed out), implying the stock lost nearly 37% of its pre-crisis value. It recovered from the 2008 crisis to levels of around $31 in early 2010, rising roughly 16% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
Verizon Fundamentals Over Recent Years
Verizon’s revenues rose from around $132 billion in 2019 to about $137 billion in 2022 led by higher demand for wireless data services following Covid-19 and the expansion of the company’s 5G network. Verizon’s earnings also rose from around $4.66 per share in 2019 to $5.06 in 2022 driven by higher sales.
Does Verizon Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Verizon’s total debt increased from $111 billion in 2019 to about $153 billion presently, while its total cash stood at under $5 billion as of the most recent quarter. It also garners about $38 billion in cash flows from operations. Although the company’s cash holdings are relatively low, its stable cash flows put it in a reasonably healthy condition financially.
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe Verizon stock has the potential for reasonably strong gains once fears of a potential recession are allayed. That said, fears of a potential recession and concerns about competition could weigh on the company’s returns in the near term.
|S&P 500 Return||0%||17%||100%|
|Trefis Reinforced Value Portfolio||-2%||29%||563%|
 Month-to-date and year-to-date as of 9/12/2023
 Cumulative total returns since the end of 2016