T-Mobile Approaching Cash-Flow 'Hockey Stick,' Wells Fargo Upgrades To Outperform
Jennifer Fritzche, Wells Fargo's telecommunications analyst, upgraded T-Mobile US Inc (NASDAQ: TMUS) on Monday to Outperform from Market Perform with a valuation range boosted to $52-$54 from a previous $48-$50.
According to Fritzche, T-Mobile is approaching a "hockey stick" ramp to its free cash flow generation and this metric, more so than any other, will "likely become a key focus" for investors moving forward.
Fritzche said T-Mobile's free cash flow growth will extend into 2017 and won't be affected by spectrum costs from ongoing auctions. Specifically, the analyst is expecting the company to generate $1 billion in free cash flow in fiscal 2016, $2.6 billion in fiscal 2017 and $3.7 billion in fiscal 2018 under a "base case" assumption that the company spends $7 billion in spectrum auctions.
However, even under an extreme scenario in which the company spends $8.3 billion in auctions, it will still generate almost $3 per share in free cash flow in 2017.
The analyst also stated that adjusting T-Mobile's valuation for non-cash items such as lease depreciation,the stock is trading at "only" 6.0 times 2017E EBITDA which is at a discount to Sprint's 8.0 multiple and AT&T's 6.7 multiple.
Bottom line, T-Mobile will see more free cash flow growth in 2017 than its peers and this should be the "primary focus" among investors.
Latest Ratings for TMUS
|Jan 2017||Evercore ISI Group||Initiates Coverage On||Buy|
|Oct 2016||Goldman Sachs||Maintains||Buy|
|Aug 2016||Wells Fargo||Upgrades||Market Perform||Outperform|
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