Nomura Prefers T-Mobile, AT&T Over Sprint And Verizon

• Shares of major carriers have been broadly down over the past one month, as well as year-to-date.
• Nomura’s Jeffrey Kvaal initiated coverage of T-Mobile US Inc TMUS, AT&T Inc. T, Sprint Corp S and Verizon Communications Inc. VZ.

T-Mobile US: Valuation Undemanding

Analyst Jeffrey Kvaal initiated coverage of T-Mobile with a Buy rating and a price target of $48. “T-Mobile has vaulted beyond its failed AT&T deal into a market share-gaining insurgent,” the analyst wrote.

Kvaal expects T-Mobile to continue to achieve share gains and EBITDA expansion in the near term, in view of the “limited competitive response.” T-Mobile's multiple appears “undemanding,” he added.

AT&T: Visibility Into EPS And Cash Flow Growth

Kvaal initiated coverage of AT&T with a Buy rating and a price target of $39. “Mature growth in its traditional markets has led AT&T to turn to acquisitions to fuel cash flow,” he said.

The analyst expects synergies from the DirecTV deal to more than offset the modest contraction in mobile share and video subscriber erosion. “We believe conservative synergy targets provide visibility into steadily increasing EPS, cash flow, and dividends,” the Nomura report noted.

Sprint Corp: Financial Uncertainty

Jeffrey Kvaal initiated coverage of Sprint with a Neutral rating and a price target of $4.

The analyst said that improving network quality and novel pricing had “transformed a theoretical upturn into an actual revival.” He added that this appears “sustainable for now.”

Kvaal mentioned, however, that the consequent strain on the balance sheet, mainly due to capex, is “proving severe,” adding that the financial uncertainty warrants a multiple discount to peers.

Verizon Communications Inc.

Kvaal initiated coverage of Verizon with a Neutral rating and a price target of $47.

“Verizon's leading mobile network and history of crisp execution support stability in its sales and free cash flow,” Kvaal wrote. He added, however, that this causes lack of visibility into the company’s EPS growth in 2016 and beyond. “We await a better growth story on this quality company.”