Shares of AT&T (T) are slipping after Wells Fargo analyst Jennifer Fritzsche downgraded the stock to Market Perform, saying she believes the stock will be range bound over the near-to-medium term and Entertainment and Enterprise pressures may persist. Furthermore, the analyst highlighted that Time Warner brings a "brave new world of assets" to manage.

MOVING TO THE SIDELINES: In a research note to investors this morning, Wells Fargo's Fritzsche downgraded AT&T to Market Perform from Outperform and lowered her price target for the shares to $35 from $40. While the analyst agrees in the longer-term story of AT&T's strategic perspective, she thinks that the stock will be range-bound over the near-to-medium term. The stock's valuation appears compelling, but Fritzsche believes it has to get a few full quarters under its belt with the Time Warner integration before the longer-term strategy gains more credibility with investors. The analyst pointed out that she remains concerned headwinds from AT&T's video migration to Over-The-Top and weaker than expected enterprise performance will weigh on overall results. While she does not in any way expect HBO to become the next Netflix (NFLX ), Fritzsche argued that the synergy outlook promised by Time Warner may need to be reinvested into this content machine. Assuming AT&T reinvests its cost savings synergies into producing content in 2019, its programming budget would still be 33% shy of Amazon (AMZN) and $5B less than that of Netflix, she noted. Beyond programming costs, the analyst is still concerned about the "intangible" effect of merging Time Warner and legacy AT&T assets as the former represents a deal like no other the latter has done.

Additionally, Fritzsche noted that near-term focus on deleveraging could push other priorities down the list. The multiple capital demands for AT&T are happening at a time when its competitors on the cable and telecom side remain somewhat double-downed on their network investment, she contended, adding that the competition may be investing in a faster and more aggressive pace, especially in the fiber area. Nonetheless, the analyst highlighted that she continues to believe AT&T's dividend is secure at current levels.

PRICE ACTION: In late morning trading, shares of AT&T have dropped about 2% to $32.86.