MoffettNathanson downgrades T-Mobile following intro of 'All-In' plans

T-Mobile CEO John Legere (T-Mobile)
T-Mobile CEO John Legere. Image: T-Mobile

MoffettNathanson Research downgraded shares of T-Mobile to neutral from buy, citing concerns about the overall U.S. wireless market in the wake of the carrier's cheaper pricing plans.

T-Mobile drew headlines last week following a high-profile media event last week at CES during which it sweetened and streamline the T-Mobile One plans it introduced just a few months ago. The carrier will kill taxes and fees with the plan and it dropped its longtime Simple Choice plans entirely, doubling down on unlimited data.

The move will lower the average monthly bill for a family of four from $180 to $160, T-Mobile said last week. The new structure underscores the growing trend of unlimited data among carriers—every carrier except Verizon, that is—and signals the latest salvo in a pricing war that has unfolded over the last two years as the segment has become more competitive.

“Lost in the post-election melt-up is the fact that even as the wireless stocks were rising in November and December, handset subsidies were quietly making their unwelcome return,” Craig Moffett wrote in a research note to investors. “This return of subsidies, now layered onto pricing plans that were supposed to be subsidy-free, does not appear to be factored into estimates or valuations.

“At the same time, T-Mobile’s new ‘All-In’ pricing plan (i.e. including all taxes and fees, other than sales tax on handsets) opens yet another front in the battle over service plan pricing, leaving us incrementally more cautious about ARPU forecasts for all operators, not least T-Mobile itself.”

Indeed, T-Mobile remains the best-positioned carrier in the market, MoffettNathanson opined, and its shares are the most “reasonably valued.” But the firm lowered its target price for the stock from $65 per share to $61 per share, shares were trading at $56 before the market opened Tuesday morning.

Meanwhile, MoffettNathanson noted significant challenges faced by AT&T and Sprint.

“Risks appear higher for AT&T, where we anticipate that growth challenges will be highlighted by what will be their first comparable year-over-year quarter since their DirecTV acquisition, and for Sprint, where a sky-high valuation, along with a widening gap between as-reported results and accounting-adjusted ones, leave investors vulnerable to the possibility of an unwelcome free cash flow surprise.”