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AT&T Inc (NYSE: T), one of the world’s largest telecommunications companies has witnessed a significant drop in its stock value, reaching its lowest point in three decades. Shares of the company reportedly tumbled by nearly 7% on Monday, as news of its involvement in the distribution of toxic lead cables spread like wildfire.
A recent report published by The Wall Street Journal on July 9 has brought to light a disturbing revelation involving major telecommunications giants AT&T and Verizon Communications Inc (NYSE: VZ). The report names these corporations, among others, as having abandoned an enormous network of underground wires containing hazardous lead.
AT&T now faces the challenge of restoring investor confidence amidst the ongoing toxic lead cable scandal. The stock has lost a quarter of its value this year, plummeting more than 12% since the Wall Street Journal report. The stock touched a low of $13.68 on Monday, the lowest since March 1993.
AT&T’s forward Price-to-Earnings (P/E) ratio of 5.95, as reported by Eikon data, stands below the industry median of 8.78. This suggests that AT&T’s stock is trading at a lower valuation than its peers in the industry.
Notably, Verizon has also experienced a decline in its stock price, falling 5.5% to $32.14, reaching a nearly 13-year low. Since The Wall Street Journal report, Verizon’s stock has lost over 10% of its value.
Citi analysts, led by Michael Rollins highlighted in a recent investor note that AT&T’s potential significant exposure to toxic lead cables poses unquantifiable financial risks for the company, creating a long-term overhang on its stock. With its extensive network reaching about 40% of US homes, the financial implications related to environmental cleanup, remediation efforts, and legal liabilities are causes for concern.
In response to a request for comment, AT&T Inc did not provide an immediate response to debunk the hanging fears from investors and users. However, US Telecom, a lobby group representing AT&T, Verizon, and other telecoms firms, issued a statement shedding light on the considerations involved in the decision to remove or leave buried cables.
The group emphasized that there is currently no evidence indicating that “legacy lead-sheathed telecom cables” are the leading cause of lead exposure or public health issues.
Analyst Michael Rollins from Citigroup has downgraded his rating on the company’s stock and significantly reduced the price target. Rollins downgraded the stock from “buy” to “neutral” and slashed the price target from $22 to $16. Similarly, JPMorgan Chase & Co (NYSE: JPM) analysts, led by Philip Cusick, have joined the list of analysts downgrading their rating on AT&T Inc’s stock. The analysts lowered their rating from “overweight” to “neutral” in response to the series of concerns.
The downgraded rating by JPMorgan further underscores the growing apprehension among analysts regarding AT&T’s financial outlook and potential challenges the company may face in its core business areas.
On the other hand, Morningstar analyst Michael Hodel has commented that while the situation warrants attention, he does not expect the telecom industry to bear substantial legal liability.
Hodel’s statement reflects the belief that the potential legal consequences and financial liabilities associated with the toxic lead cables may not have a significant impact on the overall telecom industry. However, constant monitoring and assessment of the situation will be required to properly grasp the scope of any legal or financial consequences.
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AT&T’s free cash flow dropped significantly as a result of which the stock price took a severe beating on Wall Street in Thursday’s early trading hours.
During the early trading hours on Thursday, April 20, the stock price of telecom giant AT&T (NYSE: T) came crashing down by more than 7%. As of press time, the AT&T stock is trading 7.26% down at a price of $18.28. Today’s price crash in AT&T pushes the stock into negative territory on the year-to-date chart.
The recent action in AT&T’s stock came as the telecommunications giant reported free cash flow for the first quarter of the year 2023, falling severely short of analysts’ expectations. Also, the March quarter’s adjusted earnings for AT&T from its continuing operations were 60 cents, down by 5% from a year before.
Interestingly, the telecommunications giant reported better-than-expected revenue which jumped by 1.4% to $30.1 billion. Analysts at FactSet predicted AT&T earnings of 58 cents a share on revenue of $30.2 billion. A year before, AT&T had reported earnings of 63 cents a share on revenue of $29.7 billion from continuing operations.
During the first quarter of this year 2023, the company’s free cash flow came at $1 billion, while missing the estimates of $3.2 billion. Also, during the March quarter, the company reported 424,000 postpaid phone net additions and 72,000 net additions within its fiber broadband business. Commenting on the developments, Chief Executive John Stankey said:
“We’re winning thanks to a proven and sustainable playbook that centers on simple, customer-centric experiences. As a result, we’re adding high-value customers, and when they choose AT&T, they stay with us.”
For the first quarter of the year, the telecom giant’s wireless revenue rose 2.5% to $20.6 billion. Although the company added new wireless postpaid phone customers, the growth was relatively slow during the first quarter. In the year-earlier period, AT&T had added 691,000 postpaid phone subscribers.
Previously, AT&T said that the first quarter tends to be seasonally slow on the metric due to the timing of the device payments, incentive compensation, and other factors.
Along with AT&T, subscriber growth is also likely to slow for other players such as T-Mobile US and Verizon Communications. Both these companies shall report their numbers ahead of this month.
The AT&T shares owned a Relative Strength Rating of 78 out of a best-possible 99. It will be interesting to see as to how long will it take for the fall in the share price to cool down.
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