J.P. Morgan’s Philip Cusick backs away from bullish rating, citing slowing growth drivers and worries about potential lead liability
Shares of AT&T Inc. sank toward a nine-month low Friday, after J.P. Morgan downgraded the telecommunications giant, citing slowing growth drivers and uncertainty over potential liabilities regarding lead-sheathed cables.
Analyst Philip Cusick cut his rating to neutral, after being at overweight since April 2022, and lowered his price target on the stock T, -4.10% to $17 from $22.
Based on management’s lowered outlook for the company’s wireless and broadband business in recent months, Cusick said he believes the mobility and consumer wireline businesses are facing more pressure.
While AT&T’s stock is trading at “record-low valuation” with a dividend yield of 7.34% as of Thursday’s close, “we worry that the repeated downward revisions for its key wireless and fiber growth businesses, the high interest-rate environment, and new uncertainty regarding lead sheathed cables will limit any substantial rebound,” Cusick wrote in a note to clients.
The stock dropped 1.3% in premarket trading, which puts it on course to open around the lowest closing prices since October 2022.
The stock had closed unchanged Thursday, after falling 6.2% amid a six-day losing streak through Wednesday. That was the longest losing streak since it fell for seven straight days to June 16, 2022, according to Dow Jones Market Data.
Cusick said he has discussed the copper lead sheathing situation with many industry contacts but has been unable to find a reasonable way to calculate the potential liability. He said he believes AT&T will have more exposure than its rivals given its local-exchange carrier (LEC) business reaches about 40% of U.S. homes, and given it owns the original long-haul network.
“We see the potential liability as an unquantifiable, long-term overhang for the stock, which adds to the risk premium and drives much of our [price target] reduction,” Cusick wrote.
The company is scheduled to report second-quarter results on July 25.
AT&T’s stock has tumbled 24.1% over the past three months through Thursday, while the Communication Services Select Sector SPDR exchange-traded fund XLC, -0.94% has rallied 14.5% and the S&P 500 index SPX, -0.10% has gained 9.0%.