JP Morgan: Here Comes T-Mobile

In a recent report, JP Morgan analysts made their case for owning T-Mobile US Inc TMUS. The report centered around T-Mobile’s recent pre-announcement of strong 4Q14 numbers.

Guidance Maintained

Despite higher-than-expected churn rates, T-Mobile kept guidance unchanged. JP Morgan analysts now estimate a 1.7 percent churn rate for the quarter and a $5.55 billion EBITDA (earnings before interest, taxes, depreciation and amorization) for the year.

The Numbers

T-Mobile reported 1.27 million total postpaid net adds in 4Q14, beating JP Morgan’s estimate of 1.1 million. T-Mobile added 1.037 million phone subscribers in the quarter, less than the 1.175 million it added in 3Q14, but far exceeding JP Morgan’s expectations of only 850,000 adds. In addition, the company added 239,000 mobile broadband subscribers, up from 204,000 in Q3. Finally, the company reported 266,000 prepaid net adds in Q4 versus only 112,000 in Q3.

Gaining Market Share

According to the report, T-Mobile continued to win over subscribers from AT&T Inc. T, Verizon Communications Inc VZ and Sprint Corporation S in the most recent quarter. T-Mobile reported Q4 porting ratios of 1.4:1 versus Verizon, 1.8:1 versus AT&T and 2.2:1 versus Sprint, indicating that T-Mobile is taking market share from each of the other top four providers. T-Mobile’s overall porting ratio for 2014 against the other three top providers was 2.1:1.

Price Target

JP Morgan maintains an Overweight rating on T-Mobile and has a $40 price target set for the stock. The $40 price target represents a 37.4 percent upside for shareholders from current levels. T-Mobile’s full earnings report for Q4 is expected to be released on February 19.