BofA says AT&T, Verizon lead liability ‘appears less’ than what’s priced in

BofA notes that AT&T (T) shares are trading down from $20 in April to $14.77 currently, which it sees being due to free cash flow generation concerns that “have been addressed,” concerns that Amazon (AMZN) might enter the wireless business, “which have proven unfounded,” and new lead cable revelations. However, the $29B in market cap contraction “more than captures lead-related liability risks and leaves upside opportunity for a still-healthy and well-functioning business,” argues the firm. BofA is revising its AT&T price target to $20 from $25 in an effort to capture sector valuation and new risks, while keeping a Buy rating on the shares. The firm maintains a Neutral rating on Verizon (VZ) with a $41 price target, but notes that its stock is trading down from $40 to $35 for “similar reasons,” absent the free cash flow concerns. The firm, which believes this $21B market cap contraction “more than captures its potential liability risk,” estimates the direct cost of possible lead-clad cable remediation at $2.9B for AT&T and $650M for Verizon and believes these costs should have no material impact on free cash flow or dividends if they are spread out through time.