What happened
Is it over yet?
After 10 rough days of almost unabated selling, shares of telecom giant AT&T (T +1.45%) finally bounced back on Wednesday, posting a gain of 7.8% through 12:25 p.m. ET and erasing ... well, certain not all of the stock's recent declines, but at least its declines from the last couple of sessions. Fellow Ma Bell descendants Verizon Communications (VZ +1.65%) and Frontier Communications Parent (FYBR +0.00%) -- both of which suffered alongside AT&T -- are bouncing back as well on Wednesday, up 5.3% and 24%, respectively.
The reason for all the selling: On July 9, The Wall Street Journal published the first in a multiday series of articles describing the environmental hazards posed by miles and miles (and miles) of lead-wrapped copper telephone lines that Ma Bell laid across America. The series described the potential for AT&T and Verizon in particular to suffer environmental lawsuits over the health effects caused by the deterioration of this lead sheathing, and its leaching into the soil and groundwater -- and also the potential costs of removing the lead-sheathed wires to mitigate the problem.
Frontier, which is smaller, presumably has a lower degree of exposure to lead liability risk. But it, too, possesses assets inherited from Ma Bell, so it may face the same problems from them.
NYSE: T
Key Data Points
So what
That explains why telecommunications stocks have been down so much of late. But why are they going back up Wednesday?
Well, as Reuters reported Wednesday morning, AT&T is finally addressing the issue, and reassuring investors that "less than 10% of its copper footprint of roughly two million sheath miles of cable" is actually wrapped in lead. The company also noted that more than two-thirds of the lead-sheathed cable out there is buried (although this may not be great news for the soil, actually), and only "a very small portion" is underwater, which is at least good news for groundwater -- and may make remediation a bit easier.
In any case, the upshot of AT&T's response is that the problem isn't as big as the Journal made it out to be, and investors shouldn't worry too much.
Now what
Granted, that's kind of what you would expect AT&T to say about this. But the fact that AT&T is saying anything at all seems to be reassuring investors a bit. Also helping is the fact that Wall Street analysts have finally begun publicly quantifying the risks for investors, and the numbers they're coming up with are at least a little less than terrifying.
KeyBanc, for example, posits the cost of litigation and remediation at anywhere from $5 billion to $50 billion for AT&T and Verizon combined, but says even the larger of these sums seems "well reflected in the stock prices." Oppenheimer asserts the total liability is probably only in the $2 billion to $20 billion range -- and points out that the two companies have already taken a combined $30 billion hit to their market capitalizations.
Meanwhile, no one is saying much about Frontier's potential liability -- but the fact that Wall Street isn't talking about it may mean there's simply not much risk to talk about there.
Long story short, Wall Street thinks this lead story has become overblown, the risks aren't as bad as have been reported, and that the risks that do exist are now baked into the stock prices. Best of all for investors, Barron's came out Wednesday with an analysis asserting that AT&T could handle as much as $35 billion in lead liability, and Verizon could absorb $8 billion, without either company having to cut their dividends at all.
Speaking of which, for any investors willing to take the risk, at their current share prices, both AT&T and Verizon currently sport dividend yields of 7.7%.
