How Verizon became the Dow's worst stock

How Verizon became the Dow's worst stock

Posted: Oct 20, 2021 11:31 AM
Updated: Oct 20, 2021 11:31 AM

Verizon reported earnings that topped forecasts Wednesday morning and issued a more upbeat outlook for 2022. That's some much-needed good news for the company, which has been the Dow's worst-performing stock this year, falling about 10%.

Overall, the Dow is up about 16% in 2021, making Verizon's underperformance really stand out. (Biotech Amgen, another Dow component, is also down nearly 10% this year.)

Even though profits were better than expected and shares rose about 2% Wednesday, Verizon may still find it difficult to excite Wall Street much longer. Sales growth remains sluggish and the company's revenues grew just 4% from a year ago, missing estimates.

Verizon is stuck in a highly competitive wireless business where companies have to fight for subscribers and often have to resort to low prices to attract users.

It doesn't help that many consumers are increasingly content to hold on to older phones for longer periods of time before upgrading — even as Apple, Samsung and others keep churning out new models.

As such, Verizon isn't the only telecom that's struggling. Rivals AT&T (which owns CNN's parent company, WarnerMedia) and T-Mobile are languishing this year too. Both stocks are down more than 11% in 2021.

Despite the fact that there are now only three major wireless carriers following T-Mobile's merger with Sprint, competition remains intense.

"There is, of course, a little bit more competitive landscape right now," said Verizon CEO Hans Vestberg during a conference call with analysts Wednesday. But Vestberg stressed that Verizon is adding "high-quality customers" — code for users who are signing up for pricier plans.

Still, Vestberg conceded that the company won't be getting rid of its generous deals and promotions to attract new users.

"We have been going back and forth on our promos," he said during Wednesday's call. "Right now, we feel very good about how we compete in the market. So we're always going to have promos when we think it's the right timing of it."

Investors may not like the sound of that — even if it is music to customers' ears. Verizon is also now spending aggressively to upgrade its networks.

Vestberg said during an investor presentation in March that the company paid a whopping $52.9 billion at recent Federal Communications Commission wireless spectrum auctions to boost its 5G presence.

Still, Verizon is making a clear bet that having what it hopes will be the fastest and best 5G network is the key to success. The company, under Vestberg, decided to ditch the content business.

Verizon sold off its media division, the unit formerly known as Oath that included AOL and Yahoo, to private equity titan Apollo for $5 billion in September.

Verizon is retaining a 10% stake in that business though, and Vestberg described the decision to scale back on media as a "strategy refinement" during Wednesday's call.

That move still may not be enough to win back Wall Street as Verizon is also being hurt by macroeconomic conditions that are out of its control.

Long-term bond yields have been rising this year as the economy has improved and the Federal Reserve has signaled plans to cut back on, or taper, its massive asset purchase program.

With the 10-year Treasury now yielding about 1.63%, up from 0.92% at the end of 2020, Verizon's dividend yield of 4.9% isn't as attractive to conservative investors as it once was. Bonds are now more compelling, especially since many investors expect the Fed will hike interest rates next year.

That makes Verizon less interesting to investors who might have only been buying the stock for its big dividend yield while willing to overlook its sluggish growth.

Rising rates also could hurt Verizon because it will make it more expensive to pay interest on its ginormous pile of debt. Verizon said Wednesday that although it reduced its debt load by $5.2 billion in the third quarter, it still has $131.6 billion in net unsecured debt on its books.

The-CNN-Wire
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Mississippi Coronavirus Cases

Data is updated nightly.

Cases: 515504

Reported Deaths: 10296
CountyCasesDeaths
Harrison34999558
DeSoto33360432
Hinds32743643
Jackson24906392
Rankin22565405
Lee16455245
Madison14954283
Jones14158248
Forrest13834260
Lauderdale12311323
Lowndes11357193
Lamar10693140
Pearl River9748244
Lafayette8868143
Hancock7849132
Washington7559169
Oktibbeha7229138
Monroe7068179
Pontotoc7033110
Warren6885178
Panola6791135
Neshoba6744210
Marshall6707142
Bolivar6468151
Union643598
Pike5942157
Alcorn5921107
Lincoln5540136
George510680
Prentiss508285
Tippah495683
Itawamba4884107
Scott478999
Tate4777117
Adams4776125
Leflore4749144
Copiah458195
Yazoo458092
Simpson4566117
Wayne443472
Covington434895
Sunflower4319106
Marion4295112
Coahoma4244110
Leake414191
Newton396182
Tishomingo386894
Grenada3789109
Stone366166
Jasper341266
Attala340490
Chickasaw318367
Winston318392
Clay312978
Clarke301695
Calhoun286850
Holmes272889
Smith270552
Yalobusha244947
Tallahatchie232353
Greene225149
Walthall222166
Lawrence220242
Perry214556
Amite210357
Webster206548
Noxubee188843
Montgomery182157
Carroll175441
Jefferson Davis174343
Tunica163539
Benton153139
Kemper145441
Choctaw137027
Claiborne134839
Humphreys132239
Franklin126530
Quitman107828
Wilkinson106139
Jefferson97134
Sharkey65321
Issaquena1957
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Alabama Coronavirus Cases

Cases: 847659

Reported Deaths: 16172
CountyCasesDeaths
Jefferson1163752005
Mobile743371381
Madison53434738
Shelby38413371
Baldwin38171589
Tuscaloosa36131643
Montgomery34571782
Lee25664264
Calhoun22622519
Morgan22527408
Etowah20059520
Marshall18821318
Houston17769426
St. Clair16946359
Limestone16192220
Cullman16140305
Elmore15948295
Lauderdale15055307
Talladega14244302
DeKalb13061271
Walker12138380
Blount10765193
Autauga10545157
Jackson10204195
Coffee9435192
Colbert9363210
Dale9038192
Tallapoosa7283202
Russell710165
Chilton7078170
Covington6967197
Escambia6962144
Franklin6364108
Chambers5795142
Marion5435130
Dallas5302210
Pike5128109
Clarke485686
Lawrence4845130
Winston4785110
Geneva4650136
Bibb435495
Barbour370180
Butler3444101
Marengo342793
Monroe338366
Randolph337767
Pickens334790
Fayette331485
Henry321066
Cherokee319964
Hale318889
Crenshaw261678
Washington256852
Cleburne255460
Lamar253555
Clay252069
Macon245767
Conecuh193562
Coosa185847
Wilcox178338
Lowndes178268
Bullock152745
Perry141840
Sumter139741
Greene130345
Choctaw94328
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