Deutsche Bank upgraded its outlook for T-Mobile, urging investors to buy shares before the company increases its dividends and buys its own stock.
Shares of T-Mobile dipped Monday following news that a highly anticipated merger with Sprint was no longer on the table (although Sprint’s stock far more precipitously). But Matthew Niknam of Deutsche Bank raised his rating for T-Mobile shares to buy from hold this morning, saying he sees “a 17% upside” to the analyst firm’s $65 price target.
Shares of T-Mobile were selling at $26.19 late this morning.
“Though the conclusion of M&A talks with Sprint have dashed optimism around significant synergies ($30 billion-plus net present value), we ultimately believed that: (a) a deal would have faced significant regulatory hurdles) and (b) the lengthy approval-integration planning process was likely to impact/disrupt operational execution,” Niknam wrote in a note to investors. “The ‘new reality’ of U.S. wireless includes maturing/slowing growth, and rising competition (both from T-Mobile/Sprint, as well as new cable MVNOs). Amidst this backdrop, we think T-Mobile is best positioned given (1) its ability to grow share meaningfully ahead of peers, (2) ramping free cash flow following years of significant investments, and (3) most underappreciated, the increasing potential for accelerating shareholder returns.”
Niknam’s research note echoed comments by Tim Hoettges, CEO of T-Mobile parent Deutsche Telekom, who said the U.S. operator may yet merge with another company but is well-positioned to thrive on its own.
“It was right to make an attempt” to merge with Sprint, Hoettges said on a conference call, according to Reuters. “But it is just as right for T-Mobile US to continue now along its own path.”
Niknam noted that T-Mobile has yet to tap a few markets that should help it continue to grow even as the overall U.S. wireless industry plateaus. The nation’s third-largest mobile network operator is expanding its network and distribution footprint in suburban and rural regions thanks largely to the cache of 600 MHz spectrum it won at auction earlier this year, and it is just beginning to pursue an enterprise segment that has long been dominated by Verizon and AT&T.
“In addition, there are several incremental growth catalysts that should benefit T-Mobile in 2018, including an increased distribution footprint (30 million to 40 million new POPs), better traction in underpenetrated segments like commercial/enterprise, and recent introduction of the iPhone X, with demand/industry switching activity likely to spill over into early next year,” Niknam wrote.