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T-Mobile Revenue Beats Wall Street Estimates; Target Price $172 in Best Case

T-Mobile US Inc, the third-largest US wireless carrier by subscribers, reported better-than-expected revenue in the fourth quarter and said it added more subscribers as demand for its phone and internet services rose during the COVID-19 pandemic.

The wireless carrier said its total revenue rose to $20.34 billion, up from $11.88 billion seen in the same period a year ago. That was also higher than the Wall Street consensus estimate of $19.93 billion.

T-Mobile’s postpaid phone subscriber base increased by 824 thousand in Q4 2020, which they said is best in industry. This year the company forecasts postpaid net customer additions to be between 4 million and 4.7 million.

“Looking forward, the firm expects to generate $26.5-$27.0 billion of adjusted EBITDA in 2021, about 10% lower than we had anticipated. However, several accounting issues will affect earnings during the year, including the treatment of the agreement recently reached with American Tower,” said Michael Hodel, director at Morningstar.

“Management also expects to add 4.0-4.7 million net postpaid customers during 2021, stronger than our previous projection of 3.5 million. The firm also has a long track record of handily exceeding its initial forecast on this measure and pushing growth will likely pressure margins.”

That concern did help the stock to rise despite ending 2020 on a strong note. T-Mobile shares, which surged over 70% in 2020, closed about 1% higher at $130.60 on Thursday.

T-Mobile Stock Price Forecast

Sixteen analysts who offered stock ratings for T-Mobile in the last three months forecast the average price in 12 months at $147.53 with a high forecast of $172.00 and a low forecast of $120.00.

The average price target represents a 12.96% increase from the last price of $130.60. From those 16 analysts, 14 rated “Buy”, two rated “Hold”, and none rate “Sell”, according to Tipranks.

Morgan Stanley gave a base target price of $143 with a high of $181 under a bull scenario and $81 under the worst-case scenario. The firm currently has an “Overweight” rating on the wireless carrier’s stock.

Several other analysts have also recently commented on the stock. RBC raised the target price to $133 from $120. Cowen and Company lowered the price objective to $147 from $159. Credit Suisse increased the target price to $150 from $146. T-Mobile US had its price objective increased by KeyCorp to $155 from $135. The firm currently has an overweight rating on the Wireless communications provider’s stock.

In addition, Bank of America upped their price target to $155 from $130 and gave the stock a buy rating. Truist upped their price objective to $135 from $125. JP Morgan set a $150 price objective on shares of T-Mobile US and gave the stock a buy rating.

Analyst Comments

“With the closing of the Sprint merger on April 1, T-Mobile has established itself on relatively equal footing with AT&T and Verizon. Postpaid market share now stands at nearly 30% with the company targeting 2-4% service revenue growth,” said Simon Flannery, equity analyst at Morgan Stanley.

“The company will be focused on the large integration ahead as it targets $6bn+ in run-rate synergies with the majority coming from decommissioning the legacy Sprint network and moving those subscribers over to a new 5G network. Fixed wireless broadband-enabled by the company’s enhanced mid-band spectrum portfolio could open up an $80bn+ adjacent TAM.”

Upside and Downside Risks

Risks to Upside: 1) Better net adds and ARPU growth driven by new 5G network. 2) Quicker synergy realization. 3) Significant growth in fixed wireless broadband – highlighted by Morgan Stanley.

Risks to Downside: 1) High churn of Sprint subscriber base. 2) Difficulty in achieving synergy targets and integrating Sprint subscribers. 3) Wireless competition intensifies pressuring ARPUs.

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