Shares of AT&T (T) and Verizon (VZ) have fallen since a Wall Street Journal report found the telecom giants’ historic use of lead-covered cables is contaminating many parts of the country. The threat of possible legal action and how the lead issues will be resolved prompted several Wall Street firms to downgrade stocks.
“The industry’s historic use of lead-sheathed cabling will likely remain an overhang for stocks and valuation for at least a few months and potentially longer until the market can better gauge financial risk (the case applicable) for each company,” Citi analyst Michael Rollins wrote in a note on Monday.
Citi’s warning comes after JPMorgan downgraded AT&T from overweight to neutral and cut its price target to $17 from $22 on Friday, citing the belief that AT&T is most exposed to the lead problem. Meanwhile, Goldman Sachs highlighted the issue as a “new risk factor for wireline telecommunications.”
AT&T shares have now fallen more than 10% in the past five days and are now approaching a 30-year low. Verizon stock has also fallen more than 10% in the past five days.
“Prior to this report, we do not believe the market was aware of this issue and our checks with regulatory experts indicate this issue was not on regulators’ radars either,” Brett Feldman wrote Monday. analyst at Goldman Sachs. “We view this as a potential new risk factor for wireline telecom operators with legacy network assets and are therefore not surprised that the market reaction has been significant.”
Feldman admits in his memo that “investors have many questions and we have few answers,” a sentiment currently expressed by other Wall Street analysts as well.
“We view the potential liability as an unquantifiable long-term overhang for the stock, which adds to the risk premium,” JPMorgan Chief Executive Philip Cusick wrote in a note Friday.
Shares of Verizon and AT&T had already been under pressure over the past year amid slowing growth in the wireless business and rumors that Amazon would join the wireless market.
Verizon is expected to release earnings and ask executives to speak on an earnings call on July 25, while AT&T is expected to provide earnings and a business update on July 26.
Josh Schafer is a reporter for Yahoo Finance.
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