Verizon stock is currently trading at about $40 per share, representing a 33% decrease from its pre-inflation shock high of $59 in May 2021. The stock has seen a decline of about 22% since the end of June 2022, while its competitor T-Mobile has seen a 25% increase in its stock price over the same period. Verizon is facing challenges such as slower growth in the wireless phone industry, increased competition, and the impact of rising interest rates on dividend stocks like Verizon.
Over a longer period, Verizon stock has declined by 35% from $60 in early January 2021 to around $40 currently, while the S&P 500 has seen a 45% increase over the same period. In comparison, networking company Arista Networks has seen its stock surge by over 300% during this time. The Trefis High Quality Portfolio, which includes Arista Networks, has consistently outperformed the S&P 500, providing better returns with less risk. Despite the challenges, there is potential for Verizon to outperform going forward.
Verizon stock would need to gain almost 50% from its current levels to return to its pre-inflation shock level. While there is potential for the stock to expand its earnings through premium plans and the completion of its expensive 5G build-out, economic uncertainties could present headwinds. A detailed analysis of Verizon’s upside post-inflation shock compared to the 2008 recession trends shows a mixed outlook for the company’s performance.
The inflation shock of 2022 has had a significant impact on the markets, with the S&P 500 declining more than 20% at its peak. The Federal Reserve’s aggressive interest rate hikes have resulted in market volatility, with some recovery and subsequent declines. The Fed’s current stance of unchanged interest rates and a possibility of rate cuts in 2024 may provide some stability to the markets and potentially benefit stocks like Verizon.
Looking back at the 2007-08 financial crisis, Verizon stock declined by nearly 37% from its pre-crisis levels to the market bottom, before recovering by approximately 16% by early 2010. The S&P 500 saw a decline of 51% during the crisis, followed by a 48% rally by early 2010. Verizon’s fundamentals have seen steady revenue growth, driven by increased demand for wireless data services and the expansion of its 5G network, although earnings saw a decline in 2023.
Verizon’s financial health has been relatively stable, with total debt increasing but stable cash flows supporting its obligations. While the company’s cash holdings are lower compared to its debt, its cash flows from operations provide a healthy financial condition. With the Federal Reserve’s actions to control inflation and stabilize market sentiment, Verizon stock has the potential for strong gains once fears of recession are alleviated, although competition and economic uncertainties could impact returns in the near term.
