AT&T is battling concerns about its potential liability for contamination from lead-coated cables, as Wall Street analysts point out that the decline in shares of the carrier and rival Verizon Communications has gone too far.
AT&T (ticker:T) said Tuesday that it will halt plans to remove two lead-sheathed cables in Lake Tahoe that it previously agreed to remove, as it opts for additional testing and discussions with regulators.
It’s part of the company’s resistance to reports from the Wall Street Journal warning of potential health risks of copper communications cables. wrapped in lead. In the wake of the reports, AT&T on Monday posted its lowest closing level in more than 30 years, while Verizon (VZ) fell to a 13-year low.
In a lawsuit Tuesday, AT&T questioned the magazine’s reporting methods and findings, which found higher concentrations of lead than the company’s own test in Lake Tahoe, and said it would halt its removal plans until “the safety of the cables may be fully adjudicated.” ”
Wall Street analysts suggested that the declines in stocks had gone too far. analysis by Barron He points out that if AT&T faces a $35 billion lead exposure cost and Verizon hits $8 billion, both companies will likely be able to maintain their current earnings.
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“Given the significant pressure that equities have faced, we find that any reasonable estimate in terms of liability (which we’ve seen anywhere from $5 billion to $50 billion) will likely reflect well in share prices,” Brandon Nispel writes. An analyst at KeyBanc, per a research note.
Nispel said AT&T is likely to experience greater exposure due to its historical operations, and therefore, in the near term, there was a case for Verizon stock being favored over its competition. However, it maintained sector weight ratings on both stocks, noting that other than the lead cable issue, they face stiff competition and have low growth rates.
“At this point, total industry liabilities are likely to be more than $2 to $20 billion at most. The sector has already taken in $30 billion in this news story,” Oppenheimer analyst Timothy Horan writes.
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Horan also said that Verizon appears to be a safer investment than AT&T, given its lower exposure to lead. Oppenheimer has a Performance rating on AT&T stock with no price target, while it has an Outperform rating on Verizon stock with a $43 price target.
AT&T shares were up 4.2% in premarket trading Wednesday, at $14.02. Verizon stock rose 4% to $33.55.
Write to Adam Clark at [email protected]
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