T-Mobile Wins The Race As Favorite Pick For Morgan Stanley, Beating AT&T and Verizon

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  • Morgan Stanley analyst Simon Flannery highlights that Telco stocks have come under pressure in recent weeks after a decidedly mixed earnings season and a market rotation back to growth names and away from "defensive" stocks. 
  • On the positive side, Flannery notes that wireless industry growth continues to look healthy, both on volumes and increasingly ARPUs, as pricing moves take hold. 
  • It was not all positive, as Simon points out that AT&T Inc T (Over Weight, price target $22) kicked off earnings season with a $2 billion reduction to 2022 FCF guidance, and Verizon Communications Inc VZ followed with a second guidance cut in two quarters, citing weak gross adds and promo and other cost pressures. 
  • Also Read: Wireless Carriers T-Mobile, Verizon, AT&T And Broadband-Internet Providers Comcast, Charter Compete For Customers
  • Flannery notes that the market should get initial 2023 guidance from Crown Castle Inc CCI (Over Weight, price target $190) in October, while Verizon (Equal Weight, price target $58), T-Mobile US, Inc TMUS (Over Weight, price target $159), and Telus Corp TU (Equal Weight, price target C$32) have already pointed to falling capital intensity driving free cash flow growth for 2023. 
  • Turning to stocks, Simon adds that AT&T and Verizon both screen attractively from a valuation perspective with single-digit PEs and top 10 dividend yields within the S&P 500. 
  • The analyst thinks they can hold up well in a tough market, but he still favors T-Mobile as his Top Pick within Telecom Services. 
  • T-Mobile added 380 thousand postpaid net accounts and 1.7 million postpaid net customer additions, more than AT&T and Verizon combined and the highest Q2 ever. 
  • Price Action: TMUS shares traded higher by 0.95% at $145.22 on the last check Wednesday.
  • Photo via Wikimedia Commons
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