By Chibuike Oguh
NEW YORK (Reuters) -Shares of AT&T Inc fell nearly 7% to hit their lowest level in thirty years on Monday, after analysts downgraded the stock following a news report that the telecommunications giant left toxic lead cables buried across the U.S.
A Wall Street Journal report on July 9 named AT&T and Verizon among several telecom giants that abandoned a sprawling network of underground toxic lead cables, with a huge number of them possibly contaminating neighboring soil and drinking water sources.
Analysts at Citigroup and JPMorgan both lowered their recommendations on AT&T shares in recent days. The stock has lost a quarter of its value so far this year, having dropped more than 12% since the Wall Street Journal report. The shares hit a low of $13.68 in Monday’s session, the lowest since March 1993.
AT&T faces unquantifiable financial risks that would create a “long term overhang” for the stock since the company probably has a significant exposure to the toxic lead cables with its network reaching about 40% of homes in the U.S., Citi analysts, led by Michael Rollins, said in an investor note.
Rollins cut his rating on AT&T’s stock to “neutral” from “buy” and slashed his price target to $16 from $22.
AT&T did not immediately respond to a Reuters request for comment. U.S. Telecom, a lobby group representing AT&T, Verizon and other telecoms firms, said many considerations are made in deciding whether cables are removed or left buried and there’s no evidence showing “legacy lead-sheathed telecoms cables” are the “leading cause of lead exposure or the cause of a public health issue.”
“We have not seen, nor have regulators identified, evidence that legacy lead-sheathed telecom cables are a leading cause of lead exposure or the cause of a public health issue,” a U.S. Telecoms spokesperson said in a statement.
JPMorgan analysts led by Philip Cusick on Friday downgraded their rating on AT&T to “neutral” from “overweight,” citing worries over the repeated downward revisions for the company’s key wireless and fiber growth businesses, the high interest rate environment, and new uncertainty over lead-sheathed cables.
“We have discussed the copper lead sheathing situation with many industry contacts and have been unable to find a reasonable way to calculate any potential liability, but believe that AT&T will have the largest exposure given its massive LEC [local exchange carrier] business as well as owning the original AT&T long haul network,” JPMorgan wrote.
AT&T’s forward price-to-earnings ratio of 5.95 is less than the industry median of 8.78, according to Eikon data.
Shares of Verizon were also down on Monday, falling 5.5% to $32.14, a nearly 13-year low. Verizon’s stock has lost more than 10% since the Wall Street Journal report.
Morningstar analyst Michael Hodel said Friday that while “this situation warrants watching, we don’t expect the telecom industry will bear substantial legal liability.”
(Reporting by Chibuike Oguh in New York; Editing by Lance Tupper and Deepa Babington)