Why Investors Were Hanging Up on Verizon Stock Today

Telecom giant Verizon Communications (NYSE: VZ) was looking somewhat diminished on the penultimate trading day of the week, at least on the stock exchange. The company's share price took a more-than 2% hit on Thursday "thanks" to the move of one analyst tracking its fortunes. This was contrasted by the S&P 500 index having a slightly upbeat session, ultimately closing 0.2% higher on the day.

Recommendation cut

Well before the opening of Thursday's market action, KeyCorp's Brandon Nispel changed his recommendation on Verizon's stock to sector weight (hold, in other words) from his previous overweight (buy). Nispel did not set a price target.

Not coincidentally, the analyst's move comes mere days after Verizon reported its third-quarter results. According to reports, Nispel pointed out that the performance of the big telecom for the period was below his expectations. Looking forward, he said that there is little room for significant improvement in earnings before interest, taxes, depreciation, and amortization (EBITDA).

More critically for a business operating in a high-cost environment, free-cash-flow (FCF) growth looks as if it will decline, Nispel wrote.

Overblown reaction?

The prognosticator also expressed dissatisfaction with Verizon's splashy, pending acquisition of peer Frontier Communications Parent. In his view, this is not a wise deployment of precious capital and could limit the scope for Verizon to continue operating meaningful share-repurchase programs.

Personally, I don't share his increasingly bearish view. Verizon is a top operator in the modern telephony space and is doing well with next-generation services. I feel it will continue to be an important player in its industry on the foundation of a massive user base and the provision of services that are essential in the modern world.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.