AT&T (T) -) shares slumped lower Friday after analysts at JPMorgan lowered their rating and price target on the group, citing increased pressure from rivals and weakness in its wireline business.
JPMorgan analyst Philip Cusick lowered his price target on AT&T by $5, to $17 a share, while cutting his weighting on the stock to 'neutral' from "overweight' following a series of comments from management that indicated weaker profit estimates from its wireless and broadband divisions over the months of May and June.
Cusick sees AT&T growing its postpaid phone subscriber base by 2.5% this year, down from 4.7% in 2021 and 3.5% in 2022, thanks in part to increased competition from Verizon (VZ) -) and T-Mobile US (TMUS) -) and comments from CFO Pascal Desroches last month.
AT&T's postpaid additions of 424,000 over the first quarter were the slowest in more than two years, and Cusick sees the total for the three months ending in June at around 325,000.
"AT&T shares are trading at a record-low valuation of 5.6x 2023 EBITDA, with a 7.3% dividend yield, but 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.
AT&T shares were marked 4.17% lower in early Friday trading to change hands at $14.46 each.
Cusick also noted potential liability risk for AT&T linked to legacy copper cables, allegedly covered in toxic lead, that may have contaminated large areas of the U.S. AT&T said the allegations, first reported by the Wall Street Journal, “conflicts not only with what independent experts and longstanding science have stated about the safety of lead-clad telecom cables but also our own testing.”
"We have discussed the copper lead sheathing situation with many industry contacts and have been unable to find a reasonable way to calculate any potential liability, but believe AT&T will have the largest exposure given its massive LEC business as well as owning the original AT&T long haul network."
AT&T will publish its second quarter earnings before the market opens on July 26, with early estimates suggesting an adjusted bottom line of 60 cents per share on revenues of $30 billion.
