Verizon’s Stock Declined 16% In 50 Days; Will It Underperform The Market Post Coronavirus?

This article was originally published on this site

Comparing the trend in Verizon‘s (NYSE: VZ) stock over recent months with its trajectory during and after the Great Recession of 2008, we believe that the stock can potentially gain 15% once fears surrounding the coronavirus outbreak are abated. Our conclusion is based on our detailed comparison of Verizon’s performance vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Verizon Stock Fare Compared With S&P 500?

The World Health organization had declared a global health emergency at the end of January, in light of the coronavirus spread. Since then, VZ stock has lost 16% of its value (vs. about 27% decline in the S&P 500). A bulk of the decline came after March 6th, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Fears of a price war in the oil industry triggered by an increase in production by Saudi Arabia only made matters worse. VZ stock declined by 12% over the last 12 trading sessions between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500).

How Did Verizon Stock Fare During 20018 Downturn?

We see Verizon’s stock declined from levels of around $25 in October 2007 (the pre-crisis peak) to levels of around $17 in March 2009 (as the markets bottomed out) – implying VZ stock lost over 32% from its approximate pre-crisis peak. This marked a lower drop than the broader S&P, which fell by as much as 51%.

VZ recovered strongly post the 2008 crisis to levels of about $20 in early 2010 – rising by 22% between March 2009 and January 2010. Notably, though, the S&P bounced back by about 48% over the same period.

Will Verizon’s stock recover similarly from the coronavirus spread?

We compare the performance of Verizon vis-à-vis the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Verizon Stock Fare Compared With S&P 500?

Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production.

Rationale Behind Stock Movement

  • While lower economic growth and consumer spending could affect demand for the company’s traditional data plans, the company’s decision to provide 15GB of additional 4G data through 30th April is likely to help it retain customers.
  • Additionally, Verizon’s tie-up with Disney for its latest streaming platform, Disney+, is also expected to add to its customer base. Home confinement of a large population is likely to lead to higher demand for streaming service and data service options.
  • Thus, the decline in Verizon’s stock price is lower than the decline in the broader market.
  • Also, going by the trends seen during the 2008 economic slowdown, it’s likely that Verizon’s stock could bounce back strongly but potentially underperform the market as the crisis winds down, as the stock decline was not as great as that of the market in the first place.
  • We believe Verizon’s Q1 and Q2 results will confirm this reality with the drop in revenues being lower than trends in most of the other industries.
  • However, if signs of coronavirus containment aren’t clear by the Q1 earnings timeframe, it’s likely Verizon’s stock, along with the broader market, is going to see further drops (though its drop will still be lower than the market).

Conclusion

While Verizon’s stock has declined due to the Coronavirus/Oil Price War crisis, going by trends seen during the 2008 slowdown, it’s likely that it could bounce back at a reasonable rate, but potentially underperform as the crisis winds down. Based on 2008 crisis comparison, Verizon’s stock could potentially see an upside of about 15% post the current crisis.

What About Timing?

Potential for 15% gains in Verizon’s stock, and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs 4 Historic crashes builds a more complete macro picture, and complements our analyses of Coronavirus impact on a diverse set of AT&T’s multinational peers – from competitor Comcast, and impact of coronavirus on AT&T stock. The complete set of coronavirus impact and timing analyses is available here.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance TeamsProduct, R&D, and Marketing Teams