BTIG ups price target for T-Mobile amid 'relatively tame competitive dynamics'

T-Mobile US CEO John Legere during the T-Mobile Q2 earnings call. Source: T-Mobile

BTIG Research analyst Walter Piecyk upped his price target for T-Mobile (NYSE:TMUS) to $56 per share from $50 per share, saying the carrier's financials remain strong in a relatively placid market. And that market is just one more major challenge for Sprint (NYSE: VZ) as it tries to continue to gain market share, he said.

Piecyk predicted in a BTIG blog post that T-Mobile is likely to see a 7 percent yield on the more than $3 billion in free cash flow the carrier is expected to generate in 2017. T-Mobile is on track to deliver 25 percent growth in cash EBITDA next year, he wrote, "and the second quarter reports of wireless operators affirmed the relatively tame competitive dynamics of the industry."

The nation's two largest carriers are well-positioned in a U.S. smartphone market where churn rates are at all-time lows and customers are upgrading handsets less frequently. Verizon (NYSE: VZ) is enjoying "record 55 percent margins," Piecyk noted, and AT&T is (NYSE: T) seeing increased revenue growth in the IoT and is likely to slow its subscriber losses as it expands its integrated service offerings.

Sprint's outlook is not as rosy, however, he opined.

"Bulls might argue that Sprint is set to replicate T-Mobile's 2013 comeback when it increased post-paid phone gross adds by 50 percent rise," Piecyk wrote. "That growth was, in part, enabled by a 26 percent drop in Sprint's phone gross adds in 2013 followed by another 20 percent drop the following year. AT&T, Verizon or T-Mobile do not appear poised to post those types of declines nor have we seen that reflected in consensus estimates."

And the nation's third-largest carrier may be poised to be unexpectedly aggressive during the upcoming auction of TV broadcasters' 600 MHz spectrum, Piecyk wrote. T-Mobile's second-quarter report included a $2.2 billion payment for spectrum licenses and related transactions, which appears to be a deposit in advance of the auction that starts in two weeks.

"We estimate T-Mobile's $2 billion upfront payment qualify it to purchased nearly 40MHz of spectrum on a nationwide basis. That would be 4x the expected amount," Piecyk wrote. "If T-Mobile fully used its bidding qualification and spent $1.30/MHz/POP, it equates to over $15 billion, compared to prior guidance by management that it was prepared to spend half of that level…. We believe management might be retaining some flexibility if the auction provides opportunities to buy spectrum at even lower prices."

Shares of T-Mobile were trading at $47 early Tuesday.

For more:
- see this BTIG Research blog post

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