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What happened

Shares of telecommunications giant AT&T(NYSE:T)tumbled in Wednesday afternoon trading, despite the company reporting an earnings beat in the morning.

Ahead of the fourth-quarter release, analysts had forecast AT&T would report $0.76 per share in adjusted earnings on $40.4 billion in revenue. In fact, it beat on both the top and bottom lines. Revenue came in just under $41 billion, and AT&T earned $0.78 per share on a pro forma basis.

At the close of trading, AT&T stock was down by about 8.4%.

So what

While it's true that the company "beat earnings," not all the news in the report was as good. For one thing, while revenue exceeded expectations, it was still down 10% year over year. Pro forma earnings, meanwhile, were ahead of expectations -- but only up 4% year over year.

Also worth pointing out is the fact that AT&T's earnings looked worse when calculated according to generally accepted accounting principles (GAAP) than when reported according to AT&T's preferred, "adjusted" formula. GAAP profits for Q4 were actually only $0.69 per share -- significantly below the $0.78 per share headline figure.

For the full year, AT&T's revenues declined 2% to $168.9 billion. Pro forma profits increased 7% to $3.40 per share. GAAP profits were $2.76 per share, versus a loss in 2020.

Now what

All that being said, AT&T did report $26.8 billion in free cash flow generated for the year. Even at a hefty $368 billion enterprise value, that works out to an enterprise-value-to-free-cash-flow ratio of only 14. With a dividend that yields a generous 7.9% at current share prices, I have to say that valuation sounds attractive ... if AT&T can manage to keep growing its business.

The problem, however, is that AT&T does not seem to be planning to grow much -- not in 2022, at least. On the one hand, management's guidance for the coming year is for revenues to rise by a low-single-digit percentage. On the other hand, both earnings and free cash flow look set to decline. Management is forecasting adjusted earnings per share as low as $3.10 in 2022 -- potentially as much as a 9% decline. For free cash flow, AT&T is targeting only $23 billion -- a decline of 14%.

Long story short, it was weak guidance for the year ahead that caused investors to sell off AT&T stock Wednesday, despite its Q4 earnings beat.