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AT&T and Verizon have had a round of price increases recently.
Dream time
Investors have fallen
AT&T
And
Verizon
Telecom shares this year amid concerns about lead cable pollution, wireless competition and slowing industry growth — and how those issues will affect its earnings.
This makes it a good time to look for deals, according to Citi analysts.
AT&T
(symbol: T) f
Verizon
(VZ) could provide a turnaround story if lead-coated cable cleaning costs turn out to be lower than feared and competition among wireless service providers stabilizes. It should also reduce concerns about the sustainability of its dividend, as the corporate’s dividend yield is currently close to 8%.
City Michael
Rollins
He raised his Verizon rating to Buy on Neutral, and his price target for the stock to $40 from $39. He also raised AT&T to buy but maintained his $17 price target. It maintains a “junk” rating for both companies.
Verizon shares were It rose 1.9% to $34.19 in early trade on Tuesday. AT&T shares rose 2.5% to $14.57.
Shares of both companies are down this year so far, with AT&T shares down 23% and Verizon shares down 15% as of Monday’s close. They were dealt a blow after The Wall Street Journal published a report in July that found more than 2,000 lead-coated communications cables had been left abandoned and warned of potential health risks associated with the cables.
Still, Rollins said there is reason to expect stocks to rebound from the blow.
“The market value of telecom companies with potential exposure (to lead sheathed cables) decreased by $21 billion against an estimated processing cost of approximately $15 billion based on the latest disclosures and our estimates,” Rollins wrote.
The continued decline in AT&T and Verizon shares despite a number of Wall Street analysts estimating the immediate reaction to the lead-sheathed cable story was overblown, suggesting other concerns are also being priced in. However, Rollins argued that the wireless industry is healthier than some fear.
“The growth of the post-paid phone industry is pacing beyond our previous expectations and consensus, which comes as a surprise,” Rollins said. “It appears that the business sector is doing better than feared, as the level of layoffs appears to be declining.”
Rollins said AT&T and Verizon could also increase free cash flow going forward as they make a round of price increases, while also achieving cost cuts. These increases indicate that companies are mitigating fierce price competition.
“A better future free cash flow … should help reduce net debt leverage and support the dividend,” Rollins said.
However, this isn’t all good news for AT&T and Verizon. City maintains that, Rollins said
T-Mobile US
(TMUS) as its top pick in the wireless sector, noting that it is better positioned to lead the field in terms of cash returns for shareholders.
Write to Adam Clark at [email protected]
(tags for translation)communication services
