What happened
Shares of AT&T (T 0.71%) were falling today after Citigroup downgraded the telecom stock ahead of its earnings report next week.
The stock was down 4.3% as of 11:26 a.m. ET on Monday.
So what
Citi analyst Michael Rollins lowered his rating on AT&T from buy to neutral and slashed his price target from $22 to $16 in response to growing concerns over lead-sheathed cabling, which could pose a significant liability risk. Rollins also downgraded Verizon and T-Mobile on the news, which stems from a Wall Street Journal investigation.
A recent report in the Journal said that AT&T was the most exposed of the three major telecom companies because of the size of its legacy network, and showed that in the Pittsburgh area, a combination of underwater and aerial cables made the lead in the soil 7.5 times above the Environmental Protection Agency (EPA) recommended limit for children's play spaces.
AT&T had earlier said that the findings conflicted with what independent experts and science has said about the safety of the lead-sheathed cables.
JPMorgan Chase also downgraded AT&T stock last week on concerns about the lead cables, a sign that Wall Street is broadly souring on the sector.
Now what
AT&T is set to report second-quarter earnings next Wednesday, and we could get some insight into the lead cable issues, though the company's position seems to be that it's a nonfactor. The Journal's investigation could lead to an inquiry from the EPA or other agencies and possibly fines, but that's likely to take years to develop.
The stock is popular as a dividend payer, and its yield gets better as the stock falls because it currently offers a dividend yield of 8%. That is appealing, but there's been no shortage of bad news out on the stock, and its growth is sluggish and it's facing a massive debt burden.
Shares should eventually find a bottom as AT&T is stable and profitable, and a better-than-expected report next week could help the stock rebound. Analysts are expecting revenue growth of 1.2% to $30 billion and see earnings per share falling from $0.65 to $0.60. Expect the stock to move on the report.