What happened

Shares of AT&T (NYSE:T) fell 5% on Tuesday after influential research analyst Craig Moffett downgraded the stock to a sell, warning that the telecom giant's businesses are all under pressure and predicting that AT&T will struggle to hit the guidance it recently released.

So what

AT&T is a company in transition, having paid $67 billion to acquire DirecTV in 2015 and $85 billion to buy Time Warner last year in an attempt to transform itself into an entertainment giant. The acquisitions have piled debt onto the balance sheet and attracted the scrutiny of activists.

A laptop made to look like a movie theater.

Image source: Getty Images.

The company responded to investor concerns last month by laying out a three-year plan that called for no additional major acquisitions, a review of assets, and a reduction in debt. AT&T expects to grow revenue 1% to 2% annually through 2022, delivering adjusted earnings between $4.50 and $4.80 per share by 2022. It expects free cash flow to come in between $30 billion and $32 billion in that year.

But MoffettNathanson analyst Craig Moffett in a note out Tuesday said that while the goals initially sounded modest, "the more we poke at our estimates, the harder it is for us to imagine they can be achieved." AT&T's core wireless market appears to be growing more competitive, Moffett said, which could eat into growth, and the company's other businesses don't look promising.

Moffett notes that AT&T's WarnerMedia business is facing higher costs as it establishes its HBO Max product at a time when cable and affiliate fees are on the decline. The company's business wireline group is also on the decline, and the entertainment group, according to Moffett, "is a cancer" that is bleeding subscribers.

Now what

With the entertainment and business wireline groups likely to struggle to generate growth, there is a lot of pressure on AT&T's wireless business, which accounts for about 40% of total revenue, to do the heavy lifting. Moffett in his downgrade is betting it won't be able to deliver.

AT&T shares currently trade for less than eight times the midpoint of that 2022 earnings guidance. If you believe that management can hit its targets, now would appear to be a good time to buy in. Just be warned, as Moffett notes, that there is no guarantee AT&T will be able to get there.