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AT&T, Verizon Investors Have More Than Lead Cables to Worry About
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Tag: wires
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AT&T’s stock soars toward best day in 3 years as lead-cable update sparks relief
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After failing to close in positive territory for a 10th session in a row Tuesday, AT&T Inc. shares were tracking toward a sizable gain in Wednesday’s trading activity.
The telecommunications stock was up 8.4% in morning trades as recent company commentary suggested to some analysts that AT&T’s
T,
+7.62%
exposure to lead-clad cables may not be as significant as feared. The company estimates that lead-clad cables represent less than 10% of its copper-cable footprint and that “a very small portion” of those run underwater.See more: AT&T to pause prior plans to remove lead cables under Lake Tahoe as it works with regulators
AT&T shares have taken a beating lately after reporting from the Wall Street Journal keyed in on lead-sheathed cables used historically by the telecommunications industry, which the story said posed health risks.
The stock had gone 10 full trading sessions in a row prior to Wednesday without notching a gain, factoring in one session of flat performance. It fell 16.6% over that 10-session stretch, AT&T’s longest without a daily increase since one of equal length that ended Oct. 21, 2020, according to Dow Jones Market Data.
AT&T shares were on track to log their largest single-day percentage gain since March 13, 2020, when they rose 10%, according to Dow Jones Market Data.
Read also: Verizon’s lead ‘overhang’ may limit dividend increases, analyst says in downgrade
The company late Tuesday held a call with analysts and released a legal filing that left Oppenheimer’s Timothy Horan with the sense that the company’s exposure to lead cable was less than Wall Street initially expected, meaning potential removal costs could be lower than he had anticipated.
“We think [AT&T] is being conservative, but less than 10% of its footprint [or about 200,000 miles] are lead-sheathed, three-fourths of which are conduits buried underground that should likely just remain in place,” Horan wrote. “Even cables that are not buried can be left for long periods of time when safely sealed up and labeled. We believe a small minority will need to be removed, but expect [AT&T] to give more details on its earnings call next week, sooner than expected.”
He now estimates that the company could incur $2 billion to $20 billion in costs related to its exposure to lead-coated cables, whereas he had thrown out a “best guess” of $5 billion to $50 billion before Tuesday’s updates.
Cowen’s Gregory Williams was also encouraged by the disclosures AT&T made late Tuesday.
“Naturally, AT&T could not provide definitive conclusions at this time; however the company summarized the data from the court filing and essentially provided a compelling framework around the allegations,” he wrote in a note to clients. “The framework suggests a high conviction that any lead-clad cable exposure will result in very minimal health, environmental, regulatory, and financial risks, if any risk at all, and something we had suspected over the past few days of our own conversations and research.”
Shares of Verizon Communications Inc.
VZ,
+5.18%
were rallying sharply as well, up 5.4% in morning action.Read on: Verizon CEO says the wireless market isn’t such a bad business after all
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AT&T’s stock sinks toward 30-year low as it nabs another downgrade
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Shares of AT&T Inc. were falling again Monday after a Citi Research analyst weighed in with a more cautious view in light of recent reporting on legacy use of lead-sheathed cables within the telecommunications industry.
Citi’s Michael Rollins cut his rating on AT&T’s stock
T,
-6.69%
to neutral from buy Monday, writing that it was among names that could see an “overhang” following The Wall Street Journal’s recent reporting on risks related to industry’s historical use of lead-sheathed cabling as Wall Street works to understand potential financial implications.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.
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.”
Don’t miss: Verizon CEO says the wireless market isn’t such a bad business after all
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.”
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