Verizon Communications Inc. (VZ) stock has performed among the best stocks in the Dow Jones this year. Shares of the telecom giant are up 12.4% to-date, roughly five times the 2.4% YTD gains of the Dow. Factor in the 56 cent quarterly dividend payment and Verizon’s gains look even more impressive.
But one of the core reasons VZ shares have been so popular this year (the perceived stability of utilities companies in a tumultuous environment) is starting to fall apart.
On Wednesday, 36,000 Verizon workers went on strike, affecting huge swaths of its coverage area from the Northeast to the Mid-Atlantic.
Oftentimes, strikes are simply noise that investors have trained themselves to tune out. It’s entirely possible that this situation is completely temporary and ultimately a non-issue for VZ stock owners. But I wouldn’t be so sure.
Verizon Walkout: This Time It’s Different
The scale of today’s walkout is what’s most astonishing here. At 36,000 employees, this strike nearly matches the 47,000 workers who protested in 2015 across the entire country. It eclipses the 34,000 U.S. workers who went on strike at one point or another in 2014.
The union members of the Communications Workers of America and the International Brotherhood of Electrical Workers will picket in front of wireless stores and equipment facilities to get their message across, according to Bloomberg.
So how exactly does this impact VZ? Aside from the obvious disruption in workflow and productivity, this will also surely drive at least a few potential customers away from Verizon stores. I suppose if you were looking for a silver lining, it could be worse: VZ workers could’ve waited until fall for the newest Apple Inc. (AAPL) iPhone to drop, then taken to Verizon’s retail locations in hordes.
Tell me with a straight face there wouldn’t be some crazed iPhone fans taking a closer look at AT&T Inc. (T), Sprint Corp. (S) and T-Mobile US Inc (TMUS).
Of course, the strike isn’t great for publicity, either. VZ stock is down 4% since a week ago — the Dow’s up 1.4% — as concerns over the strike’s impact started becoming more real. The workers on strike are a mix of cable splicers, Fios technicians and customer service reps.
Off contract for 10 months, they’re angry with Verizon for not executing on cable build-out obligations in New York City and Philadelphia, claiming that Verizon “has failed to build-out FiOS in Baltimore, western Massachusetts, virtually all upstate New York cities and many towns in Pennsylvania.”
Verizon workers are upset with the company’s move of 5,000 customer service jobs overseas, outsourcing of installation and maintenance work to non-union contractors, failing to negotiate fair contracts with other company workers, and demanding that wireline technicians work out-of-state for up to two months at a time.
How This Affects VZ Stock Holders
This isn’t just another strike for strike’s sake: 20 U.S. Senators penned a letter to the CEO asking that he reach a fair contract agreement with the disgruntled workers. VZ stock owners certainly don’t want Capitol Hill to get in a tiff with Verizon.
And while the company has hired some contractors to make up for the 36,000 striking employees, it’s probably a little unrealistic to think these lower-paid, lesser-trained workers can perform at the same level as their union counterparts. That means service disruptions, which means calls to customer service centers — which are increasingly shut down or outsourced to who knows what country.
Verizon employees are striking from Massachusetts to Virginia, and as a D.C. resident and Fios customer, I may very well be impacted.
At this point, I’m just thankful I’m not a VZ stock owner, because if this work stoppage goes on for any extended period of time, the quality of service in major east coast markets is likely to deteriorate.
At a time when cord-cutting and intense wireless competition is already making the cable and telecom business more cutthroat than ever before, Verizon can’t afford to cede ground to competitors. But it will, if it doesn’t treat its people right.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
