T-Mobile's 5G Network Lead Gains It Another Buy Rating On Wall Street - Barron's

A T-Mobile store in San Francisco. The wireless operator is Wall Street's favorite telecom stock.

David Paul Morris/Bloomberg

With a 5G network lead, a longer runway for growth, and merger-related benefits only just beginning, T-Mobile US is Wall Street’s favorite stock pick in the U.S. telecom industry.

Benchmark’s Matthew Harrigan joined the chorus on Thursday, adding his own Buy rating and $187 price target on T-Mobile shares. That’s about 34% above the stock’s recent $140.

Some 90% of analysts rate T-Mobile stock (ticker: TMUS) at Buy, versus about 25% for wireless rivals AT&T (T) and Verizon Communications (VZ). Cable’s Comcast (CMCSA) comes close to T-Mobile’s popularity, with 85% of analysts Buy-rated on the stock, and about two-thirds recommending Charter Communications (CHTR) and Altice USA (ATUS). Wireless upstart Dish Network (DISH) is controversial, with the plurality of analysts rating it at Hold, but price targets ranging from the $20s to the high $60s per share.

Benchmark’s Harrigan’s thesis is in line with the prevailing bullish narrative around T-Mobile on Wall Street. First and foremost, he points to T-Mobile’s advantages in its wireless spectrum license portfolio, which gives it a unique advantage over competitors AT&T and Verizon in deploying and operating their next-generation 5G networks. 

T-Mobile “already has clear 5G coverage leadership with 5G coverage in all 50 states and Puerto Rico,” Harrigan wrote on Thursday. “T-Mobile now covers 295 million people across more than 1.6 million square miles with 5G. This is nearly 4 times more than Verizon and over 2 times more than AT&T.”

T-Mobile gained access to the bulk of Sprint’s mid-band spectrum licenses when it acquired its smaller rival last year. Those blocks of spectrum (mostly in the 2.5 GHz range) are in the sweet spot for 5G, with an attractive trade-off between capacity and range. Higher-frequency spectrum requires more power and can carry more data, to put it simply, but doesn’t travel as far from its antenna. And vice versa for lower-frequency spectrum, which is good for blanketing a large geographic area with relatively few cell towers, but can’t match the speed or capacity. 

AT&T and Verizon were both big spenders—to the tune of tens of billions of dollars—in the recently completed C-Band spectrum auction, adding to their own mid-band portfolios. But the first portion of that spectrum won’t be cleared for use by the wireless operators before the end of this year, and the rest before 2023. And it’s in the range of 3.7 GHz to about 4 GHz. That means physics dictates that it doesn’t travel as far as T-Mobile’s mid-band spectrum.

“T-Mobile’s 2.5 GHz band has evident advantages relative to the newly purchased C-band spectrum that is more decisive to Verizon’s and AT&T’s 5G ambitions,” Harrigan wrote. “T-Mobile estimates that C-band will require 50% more cell sites for effective coverage, with some areas requiring 4 times densification.”

More antennas required means more capital spending and a slower 5G network rollout. In the meantime, Harrigan sees T-Mobile boasting the U.S. wireless market’s best 5G offering, with superior speeds and coverage to AT&T and Verizon. And with lower average costs than its competitors, he expects T-Mobile’s track record of industry-leading subscriber growth to continue.

Harrigan sees potential for T-Mobile to win customers in rural areas and smaller markets in particular, where its 5G lead should be more noticeable and where its market share lags behind its national average. Same goes for business and government clients. A 5G wireless home broadband is another opportunity for T-Mobile to win new business on the back of its superior network capabilities, Harrigan says.

Subscriber growth means revenue growth for T-Mobile, and wider profit margins as the fixed costs of a wireless network can be spread out across more paying customers.

Harrigan forecasts T-Mobile earnings before interest, taxes, depreciation, and amortization (Ebitda) growth of about 10% annually over the next five years. Add to that roughly $7.5 billion in annual costs savings by 2024 from the combination of T-Mobile and Sprint, and free cash flow should grow to roughly $20 billion in 2025, per Harrigan’s estimate, versus about $5 billion this year. That’s ammunition for share buybacks, debt reduction, or more investment in the network. 

T-Mobile stock has climbed 80% since the start of 2020, versus a 33% return including dividends for the S&P 500. Verizon and AT&T have lost investors 2.5%, and 16%, respectively, after dividends since the start of last year.

Write to Nicholas.jasinski@barrons.com

Adblock test (Why?)

"network" - Google News
May 28, 2021 at 12:37AM
https://ift.tt/3g5s4zh

T-Mobile's 5G Network Lead Gains It Another Buy Rating On Wall Street - Barron's
"network" - Google News
https://ift.tt/2v9ojEM
Shoes Man Tutorial
Pos News Update
Meme Update
Korean Entertainment News
Japan News Update