Deutsche Bank Responds To Investor Pushback On Its T-Mobile Upgrade

Analyst at Deutsche Bank last week upgraded T-Mobile US Inc TMUS, which received some pushback from investors.

The Analyst

Deutsche Bank's Matthew Niknam maintains a Buy rating on T-Mobile's stock with an unchanged $65 price target.

The Thesis

One of the most notable critiques to the upgrade stems from the maturing and highly competitive wireless market and entry of Cable MVNOs, which could limit any upside for T-Mobile, Niknam said in a note. Granted, it's likely T-Mobile will show decelerating growth moving forward but the analyst's three-year service revenue compounded annual growth rate through 2020 of 6 percent implies its growth rate is "substantially ahead" of each one of its peers.

T-Mobile is expected to return cash to shareholders but some investors think the company will use its capital for spectrum acquisitions or accelerated capex, the analyst said. To this the analyst clarified that capital return to shareholders implies a flattish balance sheet leverage at 2.5 times through 2020, and the company already has "substantial amounts" of unused spectrum capacity.

Price Action

Some investors are shying away from the wireless market as a whole, but the analyst thinks T-Mobile's stock is "appealing" at current levels. Specifically, the stock is trading at 6x 2019E (Cash) EBITDA, which is actually at the low end range of its rivals who trade anywhere from 6-7.5x yet T-Mobile is projected to post faster growth.

Shares of T-Mobile are higher by 4 percent since the start of 2017.

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Image: Mike Mozart, Flickr