Goodbye, Verizon – Hello, Home Depot

Wednesday, August 17, 2011

Last fall, I discussed Verizon’s (VZ) investment prospects in “Verizon Communications: Income Plus Potential Growth.” The next six months produced good results, with Verizon outdistancing its key competitor, AT&T (T).

Then came a stall, followed by what looked like a breakout in early July, then – surprise! Just as Ivan Seidenberg, Verizon’s long-time, strategically-focused CEO stepped down, the company dropped a bombshell: Capital expenditures were being cut 15% (see the well-titled article, “Verizon Darkens Tech Spending Picture”). This coincident (but probably not coincidental) announcement meant meaningful growth was now off the table. Likely, this confirms the company’s growth weakness: It (like AT&T) “spends” a large proportion of its cash flow and earnings on dividends, reminiscent of the old telephone utilities, leaving too little for capital investment.

This article is posted on SeekingAlpha.com

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