What happened
Shares of AT&T (T -0.17%) were pulling back today on a down day in the market and after MoffettNathanson downgraded the stock this morning.
AT&T shares were down 4.1% as of 2:19 p.m. ET.
So what
Research firm MoffettNathanson lowered its rating on AT&T from market perform to underperform this morning for mostly valuation-based reasons.
Calling the telecom's gains over the past few months a "dramatic bounce," analyst Craig Moffett said he thinks AT&T is now overvalued. He sees rival Verizon as the better pick of the two, though he believes T-Mobile is the best of the three main U.S. carriers. Moffett maintained a price target of $17 on AT&T, implying a downside of 8% based on yesterday's closing price.
Indeed, the No. 2 wireless carrier has struggled for a long time due to a series of wasteful acquisitions, including most recently its merger with Time Warner, which led to the spinoff of Warner Bros. Discovery, and challenges in growing its business.
Revenue, excluding last year's spinoff of DirecTV and other video businesses, increased 3.1% to $30 billion, though the company grew adjusted earnings per share on a stand-alone AT&T basis from $0.62 to $0.68.
Now what
In addition to the challenges listed above, AT&T still carries a massive debt burden on its balance sheet, even after the Warner Bros. Discovery spinoff. It finished the third quarter with $134 billion in debt, and $93 billion in goodwill, which puts it at risk of future write-downs.
Most of its debt is fixed rate, which gives it some protection from rising interest rates, but it will likely pay higher rates to roll over debt as it matures.
While the company is highly profitable, the slow growth and debt servicing will remain an albatross for AT&T going forward.
