T-Mobile’s stock was upgraded to Overweight.
David Paul Morris/Bloomberg
T-Mobile US shares were ticking up on Wednesday after KeyBanc Capital Markets upgraded the wireless company’s stock to Overweight from Sector Weight.
Analyst Brandon Nispel, who had downgraded the stock in August, cited three reasons for upgrading the rating: T-Mobile’s (ticker: TMUS) best-in-class 5G network, its expanding margins, and its long-term growth rate.
T-Mobile stock was up 0.4%, at $ 126.17, in recent trading, while the S&P 500 was down 0.5%. The stock is up 8.8% year to date.
Nispel in his note said that T-Mobile leads Verizon Verizon Communications (VZ) and AT&T (T) in 5G performance and availability, “and we believe the lead is sustainable based on peers’ near term available spectrum depth and coverage targets.”
T-Mobile’s service margins have the potential to reach over 50% by 2025, Nispel wrote, and its absolute dollars of network costs and sales-related expenses should decline as costs of previous mergers are removed.
The decrease in capital spending in 2023 and beyond would also result in material free-cash-flow generation and should support T-Mobile’s “up to” $60 billion in share repurchases from 2023 to 2025, according to Nispel. Free cash flow was $5.64 billion in 2021; it’s expected to be $8.15 billion in 2022.
Lastly, the analyst argues that T-Mobile can achieve a roughly 10% cash-adjusted growth rate based on Ebitda, or earnings before interest, taxes, depreciation, and amortization, compounded annually from 2021 to 2024. This is much better than his predictions of more than 2.9% and more than 2.7% for AT&T and Verizon, respectively.
On average, analysts tracked by FactSet rate T-Mobile as a Buy, with a $165.49 price target. Nispel has a price target of $155 on the stock.
Write to Karishma Vanjani at [email protected]
