T-Mobile Investors Likely To Win Regardless Of Sprint Outcome, Says Nomura

Shares of T-Mobile (TMUS) moved higher on Tuesday after the stock was upgraded at Nomura Instinet. The firm contends shareholders are likely to win regardless of whether the mobile operator’s planned merger with Sprint (S) is approved.

UPSIDE TO T-MOBILE 'IN EITHER SCENARIO'

Nomura Instinet analyst Jeffrey Kvaal upgraded T-Mobile to Buy from Neutral with a price target of $96, up from $88. In a research note to investors, Kvaal said that the "long-awaited" resolution of the T-Mobile/Sprint merger "is now well within the investable time horizon and is likely within a month." He said he continues to believe that the deal is more likely to break, but he considers T-Mobile shareholders winners in either scenario.

While Kvaal said that the deal closing would allow T-Mobile to realize significant synergies, he also believes that a broken deal could remove a "sizeable multiple impediment and restore T-Mobile's modest premium."

The analyst said that a successful deal closing could lift the shares to $104 with "material" EBITDA accretion, even if T-Mobile's $43B NPV synergy target is a "stretch" goal. However, he said he thinks shares will also rise on a broken deal. Following a downtick he thinks will be brief given T-Mobile’s promised $7.5B buyback, he said he expects the standalone shares would trade at $93.

RESOLUTION LIKELY BY EARLY FEBRUARY

Kvaal said he believes there will be a court decision on the proposed deal by early February. He believes the market to be pricing in about a 45% chance the court allows the deal, but added that his read remains a more conservative 25%. The Nomura analyst added that he does not expect a material reworking of deal terms despite the passage of time and said he consider the deal’s uncertainty to be an impediment to T-Mobile’s multiple.

Q4 NET ADDS

Looking to Q4, Kvaal said he expects "strong" Q4 net addition figures from T-Mobile. He raised his 800,000 postpaid churn phone estimate just above the consensus to 925,000, and said he is "comfortable" with his churn and ARPU estimates of 0.90% and $45.76, respectively, suggesting T-Mobile is able to execute through recent price reductions from AT&T (T) and Verizon (VZ) as well as increasing cable competition.

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David P. Goldsmith 3 months ago Member's comment

So either way $T is a win? Sounds good to me.