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Deutsche Bank Likes These 5 Telecoms With 20% Upside Better Than The Rest

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Deutsche Bank’s Matthew Niknam initiated coverage T-Mobile US Inc (NASDAQ: TMUS), Crown Castle International Corp (NYSE: CCI), American Tower Corp (NYSE: AMT), AT&T Inc (NYSE: T) and Frontier Communications Corp (NASDAQ: FTR) with Buy ratings.

Analyst Matthew Niknam believes that stocks of these US telecom service companies offer an implied total return of nearly 20 percent and, thus, are the top picks in the sector.

See Also: T-Mobile, Crown Castle, American Tower, AT&T, Frontier Are Deutsche Bank's Favs In Telecom

The U.S. telecom services segment is characterized by players with differing scale of operations and divergent strategies.

“Though defensive in nature and supported by healthy (mid-/high-single-digit) dividend yields, we believe the sector faces a challenging growth trajectory near term given competition from both internal (Wireless) and external (Cable) industry sources,” Niknam said.

The analyst believes that in the absence of substantial revenue growth opportunities, companies benefiting from scale-related cost efficiencies and improving profitability are the preferred investment options. He expects AT&T and Frontier Communications to be the key beneficiaries of this theme.

Weakening revenue trends and a less sizeable M&A trend going forward imply that strategic direction of the various companies will define their growth profiles. “We prefer companies benefitting from scale across “pipes” (ie: AT&T, TMUS as a strategic partner) and areas of core competency (FTR, AMT, CCI),” the Deutsche Bank report stated.

T-Mobile

Deutsche Bank set a price target of $46 for T-Mobile. The company is the top pick in the US mobile services segment as it boasts of best-in class growth, robust margins and free cash flow expansion. The company has a strategic appeal to potential industry partners, Niknam added.

Crown Castle International

The price target for Crown Castle International is at $98. The company’s strengths lie in its low risky capital return strategy, its investment grade balance sheet and optionality from small cells.

American Tower

The price target for American Tower is at $104. The company’s global expansion preserves its longer-term AFFO growth sustainability, Niknam mentioned.

AT&T

The price target for AT&T is at $40. The analyst said that the company’s significant scale of operations post DTV merger and the resultant cost synergies position it uniquely among integrated distributors.

Frontier Communications

The price target for Frontier Communications is at $5.50. Niknam believes that the company’s transformational deal for the properties of Verizon Communications Inc. (NYSE: VZ) will deliver scale and synergies that are expected to help the company sustain its high dividend yield of more than 8 percent.

Latest Ratings for TMUS

DateFirmActionFromTo
Oct 2016Goldman SachsMaintainsBuy
Aug 2016Wells FargoUpgradesMarket PerformOutperform
Aug 2016Buckingham ResearchMaintainsBuy

View More Analyst Ratings for TMUS
View the Latest Analyst Ratings

Posted-In: Deutsche Bank Matthew NiknamAnalyst Color Long Ideas Initiation Analyst Ratings Trading Ideas

 

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