Shares in Verizon Communications and AT&T rose on Tuesday after a big sell-off earlier in the week after reports the telecom giants would begin testing sites for possible lead contamination.
Verizon (Ticker: VZ) shares are up nearly 5%, while AT&T (T) is up 2% in morning trade. The moves come after AT&T marked its lowest close in more than 30 years on Monday, while Verizon fell to a 13-year low.
Stocks plummeted as analysts tried to understand the potential financial strain on telecom companies after the Wall Street Journal reported decades-old lead-coated cables. Citigroup analyst Michael Rollins on Monday cut AT&T stock to neutral/high risk from buy after JP Morgan made a similar move.
Verizon is currently testing the various sites mentioned in the journal for lead contamination, the company said in an email to Barron’s. “We take these concerns about lead-sheathed cable very seriously,” the company said. AT&T also told Barron’s that it is conducting additional testing.
The sell-off caused by lead wire comes on top of an already difficult year for the industry as the company suffers from the pressures of slowing subscriber growth. While social distancing during the pandemic has helped boost subscriptions to phone and internet services, the spread is now waning.
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Monday’s price drop may have tempted some bargain hunters to buy on the dips, and the stock’s attractive dividend yields may add to its appeal. AT&T offers a quarterly dividend of 28 cents, which translates to an 8.2% dividend yield based on Monday’s closing prices, well above the S&P 500’s yield of around 1.5%.
In addition, the lead issue is unlikely to be resolved quickly, meaning the financial impact on businesses may take years to come. It was 19 years before Sherwin-Williams (SHW), Conagra Brands (CAG) and NL Industries (NL) agreed to pay $305 million to settle a lead paint litigation. Home Depot (HD) has been fined $20.75 million for labor practice violations related to lead safety in home renovations after a nearly four-year investigation.
This potentially long time horizon could be another reason for improved investor sentiment on Tuesday. But it would take more than a day to spot a trend.
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Write to Karishma Vanjani at [email protected]