T-Mobile US (TMUS) — which carries CFRA’s highest recommendation of 5-STARS, or Strong Buy — is currently the second largest wireless provider in the U.S., with 115 million customers, explains analyst Keith Snyder, in CFRA Research's flagship newsletter, The Outlook.

The company continues to capture market share from both AT&T (T) and Verizon (VZ) with its aggressive plan pricing, unique plan benefits (such as free access to Netflix), in-flight streaming and texting, free AAA service, and its leading 5G network.

We believe its 5G network is currently over a year ahead of both AT&T and Verizon’s, with its Ultra Capacity network currently covering 275 million people. We expect this network lead will give it a substantial first-mover advantage in winning enterprise clients and consumer fixed wireless access customers.

We see growth stemming from five different verticals. The first vertical is expansion in smaller markets and rural areas. In 2020, T-Mobile started out with a roughly 13% share of rural markets and is currently targeting a 20% share by the end of 2025.

We believe this goal is completely reasonable as its portfolio of low- and mid-band spectrum is well suited for the wide coverage areas required in smaller and rural markets.

The second vertical is the enterprise space, which has long been dominated by AT&T and Verizon. We believe the enterprise market represents a tremendous opportunity for T-Mobile.

The third vertical is providing high-speed internet or fixed wireless access. The fourth vertical is growth from consumers who are looking for a premium network in the top 100 markets. This is a lucrative group of customers as they are attracted to higher cost, higher margin plans, and devices.

The fifth and final vertical is growth from further progress on reducing Sprint customer churn. Prior to the merger with T-Mobile, Sprint had the highest customer churn rate in the industry. While T-Mobile has done a great job lowering that rate since the deal, there is still room for further improvements.

We expect to see an EBITDA margin between 36.9% and 38.6% in 2023 and 2024, up from 33.6% in 2022. Margin expansion will be supported by synergies from the Sprint merger, which are expected to be more than $70 billion, which is up over 60% from its initial estimate of $43 billion when the merger first closed.

Our 12-month target price of $175 applies an EV/EBITDA multiple of 11.0x to our 2023 estimate, a premium to peers, reflecting quarterly results that consistently beat both guidance and consensus estimates; ongoing market share gains; a strong, well-rounded spectrum license portfolio; and numerous opportunities for expansion into additional markets.

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