Analysts Take Dim View of Verizon’s Near Future As Strike Wears On

Prolonged strikes don’t do anyone any good. And while the six-week-old action comprises about 40,000 mostly wireline and Internet staffers, the walkout has had a staggering effect – or distraction — throughout the company and on the way Wall Street sees the entire operation. By weeks’ end, some analysts had begun sharpening their focus on the communications operations.

Indeed, Verizon’s striking workers lined up to protest outside of last week’s MoffettNathanson Media Conference in New York, chanting slogans about “corporate greed.” And Verizon’s customers have noticed a clear lack of quality service in some markets including in the nation’s capital where some FiOS TV lines were down last Thursday, apparently degrading Internet service. The wait to get a customer service representative was long.

“We are lowering our Verizon (NYSE: VZ) estimates amid the ongoing strike of 39,000 union employees which has entered its sixth week,” Wells Fargo senior analyst Jennifer Fritzsche and her telecom team told investors in a Friday research note.

Investors were told that while a federal mediator has the two sides back at the bargaining table, “a near-term resolution is still unclear.” Management recently indicated that install and order activity for FiOS has “significantly dropped” as employees have been primarily focused on repair and maintenance. “Accordingly, we are cutting our Q2 and FY’16 wireline revenue estimates by $343 million and $826 million, respectively. We are also lowering our Q2 and FY’16 wireline margin estimates to 17.7 percent and 19.9 percent (vs. 18.9% and 20.7% prior). While the striking employees are almost all wireline workers, we believe the strike has become a distraction to its wireless operations. VZ has been less promotional with its wireless offerings in Q2 and recent checks have shown some unfavorable porting trends. On 5/19, VZ also noted at an investor conference weak Q2 upgrade activity as customers wait for new device launches. We expect T is seeing a similar trend. While these are all near-term headwinds, we are maintaining our Outperform rating given its current valuation.”