Verizon Communications Inc. (VZ) Has Upper Hand in Worker Strike

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Verizon Communications Inc. (VZ) made its “best and final” offer to striking phone workers, but that doesn’t mean they’ll take it. Regardless, VZ stock has been resilient, and the telecommunications company is hardly under pressure to give in.

Verizon Communications Inc. (VZ) Has Upper Hand in Worker Strike

VZ offered its 36,000 striking workers a sweetened wage hike amounting to 7.5% over the course of the contract. But that doesn’t address workers’ concerns about being transferred from job to job.

Verizon contends that it needs such flexibility in a world where landline phones are becoming a thing of the past and it’s hard to find other areas of growth.

When revenue increases are hard to come by, a company has to cut costs in order to lift profits, and labor is usually a firm’s biggest expense.

And so far, VZ sounds like it’s willing to hold the line on the latest offer. Now in its 16th day, the Verizon strike by the Communications Workers of America and the International Brotherhood of Electrical Workers has barely registered on operations, VZ says.

True, the telco said an extended labor impasse would pressure second-quarter earnings, but it didn’t say by how much and the market pretty much said, “no kidding.” The stock went from a post-earnings plunge to being essentially unchanged since the Verizon strike began.

Heck, VZ is up 10% for the year-to-date. The broader market has gained less than 1%. That hurts the workers’ negotiation position because it means VZ doesn’t have to contend with restive shareholders right now.

Verizon Strike and VZ Stock Aren’t Linked, Yet

In other concessions, VZ offered some job-security measures, continued contributions to matching 401(k) retirement benefits and more support for pension plans. However, Verizon wants employees to shoulder more of the costs from healthcare insurance.

Healthcare coverage for striking workers expires Saturday.

In many ways, VZ doesn’t have a choice but to play hardball. The wireless market is saturated, so business is driven more by stealing subscribers from competitors than signing up new ones. Wireline is in decline (and at the heart of the current labor dispute). And broadband isn’t what it used to be. Verizon actually stopped building out its FiOS network.

So now Verizon is investing in mobile and video. The plan is to leverage VZ’s vast network to deliver mobile and video advertising. That’s why it acquired AOL, Inc. and is rumored to be after Yahoo! Inc. (YHOO). Whatever their faults as web properties, both companies have desirable ad platforms.

From an investor’s perspective, the Verizon strike is a temporary issue and they prefer short-term pain over giving into demands that would increase VZ’s costs. Wall Street expects Verizon’s revenue to decline by 4.4% in the current quarter and 2.7% for the full year. Earnings per share are forecast to decline in both periods.

For now, it appears Verizon has the advantage, which is good news for shareholders — and, of course, bad news for those participating in the Verizon strike.

Given industry-wide trends, there are many reasons to expect VZ to be as stingy as possible — and for Verizon stock to maintain price stability.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/04/verizon-strike-vz/.

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