J.P. Morgan analyst Philip Cusick has downgraded AT&T (ticker: T) from Overweight to Neutral, citing concerns about the company’s wireless growth and potential liability for lead-sheathed cables. Cusick also lowered his price target for the stock from $22 to $17.
AT&T’s stock experienced a 4.1% drop to $14.49 in midday trading, bringing it to its lowest point since May 1994. The stock has declined 21% this year.
Cusick expressed worries about the repeated downward revisions for AT&T’s wireless and fiber growth businesses, the high interest rate environment, and the new uncertainty surrounding lead sheathed cables. He believes that these factors will limit any significant rebound for the company.
In June, AT&T announced that it expects to report slightly over 300,000 second-quarter postpaid phone net additions, a decrease from 424,000 net additions in the first quarter. The company attributed this decline to deliberate decisions to avoid pursuing business with an uneconomic return profile and temporary impacts from competitor product launches.
AT&T did not respond immediately to a request for comment.
USTelecom, an industry group, responded to The Wall Street Journal’s findings by stating that “The U.S. telecommunications industry stands ready to engage constructively on this issue.”
Despite AT&T’s stock trading at a relatively low 6.2 times forward earnings, below its historical average of 8.6 times, analysts still have concerns. The company offers a quarterly dividend of 28 cents per share, which equates to an annual yield of nearly 8%.
Cusick views the potential liability regarding lead-sheathed cables as an unquantifiable, long-term overhang for the stock. This, in turn, contributes to the risk premium and leads to the reduction in his price target for the stock.
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