Argus Research Calls on T-Mobile

07/15/2020 5:00 am EST


Joseph Bonner

Senior Analyst: Communications & Technology, Argus Research Corporation

We are maintaining our "buy" rating on T-Mobile US Inc. (TMUS); we think the T-Mobile/Sprint merger is a positive for TMUS shareholders, suggests Joseph Bonner, an analyst with Argus Research, a leading independent Wall Street research firm.

The company has not only expanded its subscriber base, but has also gained access to Sprint’s trove of spectrum assets as it builds out 5G service.

The Sprint transaction took almost two years to complete as the company had to overcome intense regulatory scrutiny at the federal and state levels and a court challenge from state attorneys general.

T-Mobile nonetheless won approval from both the DOJ and FCC without diminishing management’s promised $43 billion in net present value merger synergies.

We believe that giving up Sprint’s prepaid businesses and some spectrum to DISH for a reasonable price is a good deal. The merger should also improve T-Mobile’s competitive position in the wireless industry relative to Verizon (VZ) and AT&T (T).

The success of the company’s service plan innovations has been evident in its robust subscriber acquisition metrics and in the efforts of competitors to copy various plan features, the latest being Verizon’s “Disney Plus on us” promotion, an echo of T-Mobile’s already two-year-old “Netflix on us” promotion. We think that T-Mobile remains the best positioned of the national carriers to take market share.

While completing the Sprint merger has been T-Mobile’s number-one goal, the company is also growing its subscriber base by pursuing underpenetrated customer verticals, including 55-plus, military personnel, and commercial businesses. TMUS also plans to pursue another new market, residential video, and to launch its next-generation 5G wireless network in 2020.

We are maintaining our 2020 EPS estimate of $2.73 and our 2021 forecast of $3.40. Management withdrew its 2020 guidance due to uncertainty surrounding the impact of COVID-19, compounded by issues related to merger purchase price accounting and accounting policy alignment.

Our estimates imply an average EPS decline of 4% over the next two years, reflecting the impact of COVID-19 and the Sprint integration. Our long-term EPS growth rate forecast is 10%. We are raising our target price from $105 to $123 per share.

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