AT&T (T 0.29%) continues to make money despite major declines in its pay-television business. The company did see its third-quarter profit decline from $0.65 a year ago to $0.50 in 2019, a fairly healthy number given the struggles the company has faced with its DIRECTV and U-verse businesses.

Company management has not been oblivious to the fact that some changes are needed. CEO Randall Stephenson laid out a three-year capital allocation plan to address some of those underlying issues in his remarks in the Q3 earnings release:

The strategic investments we've made over the last several years have given us the essential elements to meet growing demand for content and connectivity. Our 3-year plan delivers both substantial and consistent financial improvements over the next 3 years. We grow revenues, EBITDA, and EPS every single year, and free cash flow is stable next year, but then grows in both of the next two years, as well. And all of this is inclusive of our investment in HBO Max.

AT&T expects revenue growth of 1% to 2% in 2020. The company also expects adjusted earnings-per-share (EPS) growth between $3.60 and $3.70 in the coming year.

A remote control is pointed at a television.

AT&T has lost pay-television subscribers. Image source: Getty Images.

What problems does AT&T face?

AT&T faces a massive decline in its subscription-based television business. DIRECTV, its satellite brand, lost 1.23 million subscribers in 2018 while its U-verse brand gained 47,000, according to data from Leichtman Research Group. Those numbers have gotten worse through three quarters of 2019, with DIRECTV losing 2.3 million paying customers and U-verse dropping 104,000.

Those are customers who aren't coming back, at least in the traditional sense. AT&T hopes to offset their loss by bringing in more revenue with its HBO Max service. That's a somewhat uncertain proposition, as the company will be entering a very crowded streaming space with what is essentially HBO plus content from the Time Warner channels.

AT&T also faces some uncertainty in its core wireless business. The company may have to battle a larger T-Mobile should that company's merger with Sprint be approved. If that happens, AT&T could be forced to increase capital spending on its 5G network, and it may face pricing pressure.

Despite all of these potential (and real) problems, the company believes it has a solid plan. It expects to continue to pay a dividend and to buy back about 70% of the shares it issued to purchase Time Warner.

The company also expects to makes gains in profitability over the three-year period. Specifically, it sees adjusted EPS of between $3.60 and $3.70 in 2020, rising to between $4.50 and $4.80 by 2022. AT&T expects to invest about $0.15 to $0.20 per share in HBO Max in 2020, falling to about $0.10 per share in 2021 and 2022.

Is AT&T stock a buy?

AT&T faces a lot of questions, but its management seems to have all the answers. The company faces a fairly large problem due to cord-cutting and the expanded effect it has had on DIRECTV. 

The good news for shareholders is that AT&T has very diversified holdings. That's perhaps a solid reason to hold onto your shares, but it's not a very solid argument to buy in if you're not currently a shareholder.

AT&T looks set to deliver decent performance over the next three years, but it has limited upside and some risk. It should be a stable investment, but when doing fine is the upside, that's probably a good stock for most people to stay away from.