The Vodafone (LSE: VOD) share price has had a tough time, for sure.
In the past five years, the stock is down 50%, including a steady slide that started in early 2022. And I wonder if it can reverse. Can it get back to where it was five years ago? And if so, how soon?
It would mean a doubling of today’s share price. And I think it could happen.
Refocus
Part of the problem is that Vodafone has needed a bit of a refocus for years. Most observers saw that.
But the management seemed oblivious, and just kept handing out huge dividends that the company couldn’t really afford.
But current CEO Margherita Della Valle is different. She quickly made it clear that the company wasn’t doing well enough, and the long-awaited big shake up was coming.
The latest step has been the sale of Vodafone Italy, which raised €8bn, of which €4bn is being returned via buybacks.
Combined with the firm’s Spanish disposal, Vodafone has raised a total of €12bn that can help towards its new aim to target growing telecoms markets.
Dividend
The dividend will be slashed in half starting 2025 too. And I think that’s a good thing. It would still mean a yield of 5.5% on today’s share price. And it should hopefully be a lot more sustainable.
Forecasts right now are probably of variable value. Most of the ones I see haven’t even factored in the 50% dividend cut for 2025 yet.
But, they have so far responded positively to Vodafone’s turnaround plans.
After an expected tough 2024, the City sees a 30% rise in earnings per share (EPS) in 2025, and about 15% for 2026.
Valuation falling
That would drop the price-to-earnings (P/E) ratio to 10 by 2026. With enhanced earnings growth prospects, I’d say that already looks cheap.
If EPS should continue to grow by even 5% per year after that, we could see a P/E of 8.5 by then. And I can see a renewed Vodafone growing its earnings faster than that.
Even a doubling of the share price in the next five years could still put the P/E at around 17. And if we’ve seen a few years of good growth by then, I think that could look cheap.
Caution
The outlook for the next few years is still far from certain, perhaps more than most. And my guesses at earnings gains are just that, guesses.
I’m also wary because of another company that’s also been through a much-needed revamp. I’m talking of Aviva, which had grown large and sprawling without clear focus. On that, it seems a lot like Vodafone.
But with that well under way, the Aviva share price still hasn’t done a lot. And I think sentiment might still be against Vodafone for some time yet.
On balance, I wouldn’t buy Vodafone in the hope of the share price doubling. But I might buy for sustainable 5.5% dividends. And any share price gains would be a nice bonus.
