Investing.com — Raymond James analysts cut their rating on T-Mobile shares from Strong Buy to Outperform, while lifting the price target from $208 to $221.
While maintaining a positive outlook on the stock, the firm does not expect the same immediate share price growth as seen previously.
The revised outlook follows T-Mobile’s significant share price increase and rapid Free Cash Flow expansion, which has been more than fourfold from 2020 to 2023. The company’s stock has outperformed its peers, rising over 75% since the end of 2021, compared to Verizon’s (NYSE: NYSE:VZ) approximate 13% decline and AT&T’s (NYSE: NYSE:T) 18% increase during the same period.
“With the very successful Sprint merger fully complete, T-Mobile remains the fastest growing in the mature wireless industry, and we think it trades at a justified premium, but further multiple expansion is likely to be limited,” Raymond James analysts said in a Wednesday note.
Regarding the company’s fiber strategy and capital allocation, analysts note uncertainty, particularly around the pending Lumos and Metronet deals, expected to close around mid-2025.
While T-Mobile anticipates over 20% internal rates of return on its fiber joint ventures, questions linger about the public market’s reception to these capex-driven returns.
“We believe the company’s stance on remaining capital light and off-balance-sheet in its fiber investments is not as strong as it was a year ago, as it sees its brand and distribution allowing for higher penetration rates than the ~35% targets most overbuilder fiber companies seek and at lower acquisition and operating costs,” analysts continued.
“So, there could be benefits to T-Mobile’s fiber strategy, but it makes for a less “clean” investment case.“
The financial outlook provided by T-Mobile at Capital Markets Day (CMD) excluded the impact of $10 billion worth of pending transactions, including those with Lumos, Metronet, and UScellular.
As a result, Raymond James adjusted its C-EBITDA estimates for 2024 to 2026 slightly downward, excluding these deals until further clarity is provided. The firm also expressed caution regarding the potential regulatory challenges the UScellular deal might face.
