Shares of AT&T Inc. sank to a nine-month low on Friday after J.P. Morgan downgraded the telecommunications giant. The downgrade was a result of slowing growth drivers and uncertainty surrounding potential liabilities related to lead-sheathed cables.
Analyst Downgrades Rating and Lowers Price Target
Analyst Philip Cusick, who had previously given AT&T an overweight rating since April 2022, cut his rating to neutral and lowered the price target on the stock (T) from $22 to $17.
Cusick cited management’s lowered outlook for the company’s wireless and broadband business, stating that the mobility and consumer wireline businesses are facing increased pressure.
Concerns About Downward Revisions and Uncertainty
While AT&T’s stock is currently trading at a “record-low valuation” with a dividend yield of 7.34%, Cusick expressed concerns about repeated downward revisions for its key wireless and fiber growth businesses, the high interest-rate environment, and new uncertainty regarding lead sheathed cables. He believes these factors will limit any substantial rebound for the stock.
Stock Performance and Longest Losing Streak
The stock dropped 1.3% in premarket trading, indicating a potential opening at the lowest closing prices since October 2022.
AT&T’s stock had closed unchanged on Thursday after experiencing a six-day losing streak, during which it fell by 6.2%. This losing streak was the longest since June 16, 2022.
Uncertainty Surrounding Lead Sheathing Situation
Cusick mentioned that he has discussed the copper lead sheathing situation with industry contacts but has been unable to find a reasonable way to calculate the potential liability. He believes AT&T may have more exposure than its competitors due to its local-exchange carrier (LEC) business reaching about 40% of U.S. homes and its ownership of the original long-haul network.
Second-Quarter Results and Stock Performance
AT&T is scheduled to report its second-quarter results on July 25.
The company’s stock has declined by 24.1% in the past three months. In contrast, the Communication Services Select Sector SPDR exchange-traded fund has rallied by 14.5%, and the S&P 500 index has gained 9.0%.
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