Today, we’ll look at AT&T (NYSE:T), the telecommunications company fighting for market share along with many other competitors. Among its more popular offerings are wireless voice communication, long-distance and roaming services, as well as landline voice services. It sells handsets, wireless computers, personal computer wireless data cards and accessories.

What you might not know is AT&T also offers application management, security service, integration services, customer premises equipment, government-related services, and satellite video services, data services, Internet access and network integration, data equipment and U-verse services, as well as DSL/broadband, dial-up Internet access and Wi-Fi products.

One of the key driving factors for AT&T is that the company is in a seemingly never-ending war with myriad competitors, though it is the No. 2 player in the U.S. Still, telecom services are, at this point, a commodity. That means the ultimate winner is going to be the company that markets the best and has the best customer service. Margins will get increasingly thinner.

Stock analysts looking out five years on AT&T see annualized earnings growth at a meager 3.77%. That’s about what growth it’ll have this year, and after a projected bump up of about 7% in FY 2012, that suggests annualized growth from then to 2015 will be around 3%. That’s pretty moribund growth. At a stock price of $28, on FY 2011 earnings of $2.38, the stock presently trades at a P/E of 12. Verizon (NYSE:VZ) trades at a 15 P/E, while Sprint Nextel (NYSE:S) doesn’t even have a P/E ratio because it’s losing money. So, things could be worse for AT&T.

Looking at AT&T’s financials, the company has $3.83 billion of cash on hand but carries a whopping $58.6 billion in long-term debt, at an interest rate of about 5%. Fortunately, trailing 12-month free cash flow was an amazing $17 billion, so debt service is very manageable. The company also had 1.7 times the amount of free cash flow necessary to pay its 6.2% dividend. I have some concerns about the increasing competition affecting cash flow going forward. The company’s run rate will put its FY 2011 free cash flow around 10% below last year’s. It’s something to keep an eye on.

There have been no insider purchases of for quite some time, and that’s a concern when coupled with the free cash flow issue.

Conclusion

Placing a 4 P/E on AT&T, with projected 2015 earnings of $2.86 per share, gives us a price target of $11.40. That’s only a 10% return from here. However, the fact that it generates so much cash each year — about $3 per share worth — means we can boost that target.

Conservatively assuming $2 per share in free cash flow, we’d add $10 to the price target, which becomes $21.40. That’s a 21% decrease from here, but if you include reinvested dividends, there’s a tiny 4% to 6% appreciation from this point. This suggests to me that I would sell AT&T if you presently hold it in a regular account, and if free cash flow continues to fall, I would even consider selling short going forward.

Retirement investors are taking on some long-term capital depreciation risk, but the generous 6.2% dividend makes up for that. I would caution to keep an eye on free cash flow. If 2011 is less than 2010, and the trend continues in 2012, I would sell. For now, however:

I believe AT&T is a sell for regular accounts.

I believe AT&T is a buy for retirement accounts.

Lawrence Meyers does not own shares of AT&T.