AT&T’s stock sinks toward 30-year low as it nabs another downgrade

He also downgraded shares of Frontier Communications Parent Inc.
FYBR,
-15.79%
and Telephone & Data Systems Inc.
TDS,
-8.38%
to neutral from buy, and he already had a neutral rating on Verizon Communications Inc.’s stock
VZ,
-7.50%.

“First, copper network deployed with possible lead sheathing could be a significant percentage of the legacy network deployed nationally with varying exposures for each firm,” Rollins wrote. He said he was “unable to specifically quantify financial risks (if anything material)” for wireline telecommunications companies stemming from these issues, though “the timing to receive more information could take at least a couple months and full resolution could take years.”

AT&T’s stock was off 3.8% in Monday morning action, to a recent $13.95, and on track to close at its lowest level since March 24, 1993, according to Dow Jones Market Data. The stock is on pace to spend a ninth-straight session without a daily gain, factoring in one day of flat performance last week alongside a string of daily losses.

“We still expect the company to display forward progress on cash flow generation and setting the stage to reduce net debt leverage over the next two years before considering any potential liabilities, if anything material, associated with lead sheathed cables,” Rollins wrote, though he called out “uncertainty from the industry’s use of lead-sheathed cabling” as a key reason for the downgrade.

See also: AT&T sees ‘incredibly healthy’ wireless market, even as several factors will ding growth this quarter

Frontier shares were down 8.2%, while TDS shares were off 5.0%. Verizon’s stock was down 1.6% and on pace for its eighth consecutive losing session.

USTelecom, a trade association that counts AT&T and Verizon as members, said in a statement that the telecommunications industry “has a long tradition of closely following science and evidence as it relates to public health, environmental protection, and worker safety issues,” while “safe work practices within the industry have proven effective in reducing potential lead exposures to workers.”

There are “many considerations” that go into deciding whether to remove legacy cables, “including those regarding the safety of workers who must handle the cables, potential impacts on the environment, the age and composition of the cables, their geographic location, and customer needs as well as the needs of the business and infrastructure demands,” the spokesperson continued.

The trade group said in a prior statement that it had “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.”

Representatives from Frontier and TDS couldn’t immediately be reached for comment.

Rollins noted in his report that “Verizon and AT&T indicated their expectation as that the exposure should be small,” though he said that “for Verizon, we learned the term ‘small’ could be as much as 20% of its copper network infrastructure.”

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He joined JPMorgan’s Philip Cusick, who downgraded AT&T’s stock Friday and mentioned potential lead-cable liabilities as a concern.

SVB MoffettNathanson analyst Craig Moffett weighed in on the issue as well Monday, calling out heavy uncertainty.

“The unsatisfying, but honest, answer is that at this point we have nothing but unknowns to work with and no real way to quantify the companies’ exposures,” he wrote. “Lead risk is clearly not a good thing, but we don’t know how bad it will ultimately be. It would be disingenuous to try putting firm numbers around it.”