JP Morgan downgraded AT&T on Friday to a neutral rating amid concerns competition will continue to slow growth and uncertainty over lead-sheathed cables installed by U.S. telecom companies. Continuing its 2023 slide, T stock dipped on the news.
JP Morgan analyst Philip Cusick cited a high interest rate environment that could give investors alternatives to the high-dividend paying stock. Cusick lowered his price target on T stock to 17 from 22.
"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 Wall Street Journal reported telecom companies installed potentially dangerous lead-covered cables overhead on poles, in soil and under water for decades. They may need to take steps to make areas environmentally safe, the Journal said.
"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," added Cusick in the report. "We believe that AT&T will have the largest exposure (among telecoms) given its massive LEC (local exchange carrier) business as well as owning the original AT&T long-haul network."
In addition, second-quarter earnings for T stock are due July 26. Further, AT&T recently lowered expectations for postpaid phone subscriber additions.
On the stock market today, AT&T stock plunged 4.1% to close at 14.50. It marked AT&T's lowest close since May 11, 1994, when it finished that day at $14.58, on a split-adjusted basis, according to Dow Jones data.
S&P 500 Outperforms T Stock
In 2023, T stock has shed 17%. The S&P 500, meanwhile, has gained nearly 18%.
AT&T's free cash flow growth is key since it supports the telecom's dividend. For fiscal 2023, AT&T predicts free cash flow of $16 billion.
AT&T stock holds a Relative Strength Rating of only 12 out of a best-possible 99, according to IBD Stock Checkup. Further, the best stocks tend to have an RS rating of 80 or better.
In terms of institutional ownership, T stock owns an Accumulation/Distribution Rating of E.
The rating runs from a best-possible A+ to a worst-possible E. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
