Some large brokerage firms this week cut their ratings on specific phone giants, citing weak fundamentals in the industry.
Morgan Stanley today disclosed dropping its rating on the U.S. telecom industry from ‘cautious’ to ‘in line,’ according to Reuters. Morgan Stanley also cut its rating on the No. 1 phone company, Verizon Communications Inc., but the firm raised its rating on BellSouth Corp., the news agency reported.
Morgan Stanley cited the industry’s limited ability to slash capital spending and workforces any further, among other problems facing the industry, such as the threat of union strikes, Reuters reported.
The rating actions follow a move yesterday by Goldman Sachs to downgrade AT&T Corp. to an in-line rating from outperform.
“In an environment of weak industry fundamentals we’ve become convinced investors won’t buy telecom stocks just because they look cheap,” Goldman analysts said in a research report.
The analysts said the decision to downgrade AT&T was not related to new information concerning its operating performance, but they noted the news surfacing over the next few months “is more likely to be negative than positive.” Explaining grounds for concern, Goldman cited the regional Bell operating companies stepping up efforts to bundle services and the FCC’s written order governing phone and broadband regulations, among other factors. The FCC has yet to issue the written order.
