AT&T and Verizon shares upgraded with dividend yields at decade-plus highs

Rollins said he thinks the stocks could benefit from improving conditions in the wireless market, noting that AT&T and Verizon both rolled out recent price increases. Additionally, consumers continue to hold onto their phones for longer, which stabilizes churn and reduces device-upgrade costs that the carriers have to pay.

And while the cable industry is making inroads in the wireless market, share gains for cable “have not been a zero-sum game.”

AT&T shares are off 23% so far this year, while Verizon shares are down 15%, compared with a 15% rise for the S&P 500
SPX
over the same span. The shares have come under pressure amid concerns about lead cables that were raised by Wall Street Journal reporting.

“While initial reactions and concerns have been lessened by carrier disclosures on possible exposure, uncertainty remains on the potential financial risks (if anything material), and full resolution may still take years,” Rollins wrote. But Verizon and AT&T seem to have shed market value in excess of his remediation estimates.

“If the outcome for lead cabling is more likely in the range of immaterial to remediating the non-buried lead cabling, then we believe the stocks (largely T & VZ) could recover at least one-third, if not more than one-half, of their recent market cap losses of $21 [billion],” he wrote. (Other telecommunications stocks have declined as well and their companies also face the potential to incur remediation costs.)

See more: Another Verizon dividend hike likely on the way despite lead-cable concerns

AT&T and Verizon shares “are trading at decade-plus lows” on the basis of firm value to earnings before interest, taxes, depreciation and amortization, while their dividend yields are at decade-plus highs.

“We see an opportunity for some of the current market concerns to melt over the next 12 months, supporting a more balanced valuation outcome,” Rollins wrote, while improved free cash flow could lower net debt leverage and help support dividend payouts.

Read: These dividend stocks yield as much as 11% while meeting strict criteria for estimated cash flow

He kept his $17 target price on shares of AT&T while upping his Verizon target by a buck, to $40.