Verizon (VZ) Stock Continues Its Downward Spiral, Upside is Limited

Verizon’s (NYSE:VZ) share price extended the downward trend after missing revenue and earnings estimates by the wide margin of $670 million and $0.01 per share. VZ stock price declined more than 1% after missing first-quarter estimates, increasing the yearly decline to 9.3%. After the selloff, Verizon shares are currently trading close to their 3-month low, impacted by declining core subscribers, retail postpaid connections, and wireline revenues.

In my recent article, I advised investors to avoid Verizon shares despite the selloff due to its bleak future fundamentals and significant pressure on dividends. The company’s latest results and the continuous decline in stock price validated my opinion.

In the first quarter, its revenues declined 7.3%, compared to the prior year period. Retail postpaid connections declined by 307,000, including 289,000 phone customer losses, over the year-ago period. Retail postpaid churn declined by 1.15%, while retail postpaid connections increased only 1.2% to 108.5M, compared to the same period last year.

On the positive side, Verizon added 49,000 net smartphones to the base and its retail prepaid connections surged 0.5% to 5.4M in the first quarter this year. Overall, lower revenues also impacted its earnings and cash flow generating potential. In the first quarter, its earnings per share were standing around $0.85, relative to $1.06 per share in the same period last year.

In addition, its free cash flows are not offering a cover to dividend payments, raising a big question mark on the dividend growth. Although Verizon is a dividend aristocrat, its latest financial performances are likely creating significant pressure on the company’s potential to sustain its dividend growth. Its quarterly dividend payments are standing above $2.3 billion, while the company has generated negative free cash flow in the first quarter. Therefore, considering Verizon stock for dividends and capital appreciation isn’t a good strategy at the moment.

The author does not own Verizon stock.

Alexander is an analyst for who specializes in index and commodity trading. His outlook is usually near-term to medium-term. He has over 10 years of experience in the financial industry and began his career at the dealing desk. Alexander holds a Bachelor’s degree in Economics from University of Delaware.