AT&T Stock Just Hit a 30-Year Low. Why Lead Is Such a Big Problem.

New Street Research, in a presentation released last week, said AT&T likely has the highest exposure overall to lead-cased copper cables, followed by

Verizon

and Lumen. The research firm, based on estimates of housing units impacted and various other assumptions, landed at nearly $60 billion as the rough cost to remove the lead across the U.S., though that number could be higher or lower based on the many factors—and unknowns—involved, including the number of wires that have to come out and the cost to replace them.

The possibilities are wide-ranging and “we also don’t think the carriers would be solely responsible for the remediation cost whatever it ends up being, ” Philip Burnett, a member of the firm’s telecom team, told Barron’s. The note put AT&T’s possible spend at $34 billion to remediate the situation, although that could also be dramatically different ultimately.

An investigation by The Wall Street Journal published on July 9 reported that a large network of cables covered in toxic lead run across the U.S., even though lead hasn’t been used in new cables for decades. The lead-covered cables can be found on the poles, soil, and water potentially risking the health of workers and communities around it, the article said.

The industry altogether began phasing out lead-sheathed cables some 73 years ago, although some of these cables still remain in use to date to provide services, according to the website of the national broadband association USTelecom.

AT&T declined to comment. A spokesperson from USTelecom, who is responding on behalf of the telecom industry on this issue, said that “many considerations go into determining whether legacy lead-sheathed telecom cables should be removed” and that the association is ready to engage constructively on the issue. Entities coming to the table could be politicians, regulators, and other stakeholders.

Lead exposure has been shown to damage the brain and nervous system, especially in children, leading to slowed growth and development, according to the Centers for Disease Control and Prevention.

In response to the Journal, AT&T and other telecoms said they don’t believe its cables are a public-health hazard or a significant contributor to environmental lead considering other sources of lead closer to people’s homes.

Still, AT&T’s stock was on pace to close with a market capitalization of less than $100 billion for the first time in more than 17 years on Monday. Downgrades from analysts are likely weighing on investors’ minds. Citigroup analyst Michael Rollins in a note on Monday lowered AT&T stock from Buy to Neutral/High Risk. He lowered his target price for the stock to $16 from $22 earlier.

Though he didn’t make estimates of any potential costs, Rollins notes that “we remain concerned for further near-term downside risk and view the uncertainty as an overhang for the time being.”

Citi analysts had also downgraded

Frontier Communications

(FYBR), a Barron’s stock pick this past weekend, and

Telephone & Data Systems

(TDS) to Neutral/High Risk from Buy ratings in the same note.

Moffet Nathanson Research’s Craig Moffett on Monday kept his Neutral equivalent rating on AT&T’s stock intact but said the firm could “see a general telecom buyer’s strike for some time.”

Citi’s downgrade and Moffett’s comments come after J.P. Morgan analyst Philip Cusick cut his rating on AT&T’s stock on Friday. Cusick lowered his rating to Neutral from Overweight citing potential liability for lead-sheathed cables as one of his reasons. He cut his price target to $17 from $22.

The issue may take years to solve—

Sherwin-Williams

(SHW),

Conagra Brands

(CAG), and

NL Industries

(NL) agreed to pay $305 million to settle a lead paint lawsuit after some 19 years of litigation—and with no easy way to quantify the potential damages, investors are choosing to sell first and worry about the numbers later.

“These are companies with plenty of good reasons to be bearish and/or controversies to consider even before this latest straw on the camel’s back,” writes Moffett Nathanson’s Craig Moffett. “One struggles to imagine the arguments that will now persuade incremental investors to step in.”

At least not until this storm has passed.

 Write to Karishma Vanjani at [email protected]