Verizon Communications Inc.’s stock has recently faced significant pressure due to the reporting on legacy lead-sheathed cables used in the telecommunications industry. Analysts are concerned about the potential implications for the stock’s performance.
Edward Jones analyst David Heger downgraded Verizon shares from buy to hold following a report by the Wall Street Journal. The report discussed the use of lead cables by telecommunications companies in the past, highlighting that these cables are still present in the ground and other locations today.
Heger voiced his worries about potential remediation measures that may be required by environmental regulators and the possibility of substantial litigation liabilities due to health concerns. He emphasized that companies facing similar environmental health issues have experienced limited share appreciation, and Verizon may face a similar situation.
On Monday, Verizon’s shares dropped by 7.5%, while AT&T Inc., which was downgraded by Citi, saw a decline of 6.8%.
Verizon’s Dividend and Potential Challenges
Heger also discussed Verizon’s dividend in his note to clients. Prior to Monday’s trading, the stock’s yield was already “elevated” at over 7%, indicating concerns about the dividend’s sustainability. Although the coverage of Verizon’s dividend is expected to improve as spending on 5G decreases this year and next, Heger questions whether the uncertainty surrounding the lead-sheathed cables issue will limit the company’s flexibility.
Estimating the cost of potential environmental remediation measures is challenging, which may impact Verizon’s ability to increase its dividend while covering these costs. Heger suggests that these concerns need to be balanced with expectations for improvements in consumer wireless, continued growth in wireless revenue, and increasing free cash flow resulting from Verizon’s completion of 5G network investments.
The Impact of Legacy Lead-Sheathed Telecom Cables
Verizon, a leading telecommunications company, has raised concerns about the removal of legacy lead-sheathed telecom cables. In response to these concerns, USTelecom, a trade association that includes Verizon as a member, has stated that there is no evidence to support the notion that these cables are a leading cause of lead exposure or a public health issue.
However, USTelecom acknowledges the importance of considering various factors when deciding whether these cables should be removed or left in place. These factors include the safety of workers who handle the cables, potential environmental impacts, the age and composition of the cables, their geographic location, and the needs of customers as well as the business and infrastructure demands.
The industry is willing to engage constructively on this issue, according to the trade association.
Raymond James analyst Frank Louthan IV has weighed in on the debate, suggesting that Wall Street may have overestimated the cost of cable removal. Louthan believes these costs will not be as high as anticipated by investors. He also questions whether all the cables need to be removed given the apparent lack of regulatory action up to this point.
Taking into account the environmental regulations in place at the time of installation and the low risk of increased contamination, Louthan argues that it would be reasonable to spread the cost of cable removal over a period of 10+ years. This approach would help minimize risks for both carriers and investors.
Louthan further predicts that the focus will eventually shift from cable removal to liability for workers who may claim ingestion-related harm. He suggests that such liabilities are likely to be covered by insurance policies within the industry.
Overall, the impact of legacy lead-sheathed telecom cables is being carefully considered by industry experts and analysts. While concerns exist, such as potential lead exposure, the industry remains committed to finding constructive solutions that balance various factors and stakeholders’ needs.
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