T-Mobile’s Stock Takes a Hit Despite Nasdaq Rally
The telecommunications giant T-Mobile (NASDAQ: TMUS) saw its shares plummet 4.3% on Monday, bucking the trend of a strong day for the Nasdaq Composite (NASDAQINDEX: ^IXIC), which was up over 1.8% at the same time. This decline is particularly notable given T-Mobile’s impressive performance in 2024, with its shares finishing the year up 40% including dividends.
Analysts Sound the Alarm
Two Wall Street analysts, Wells Fargo and RBC Capital, downgraded T-Mobile’s shares from a buy to a hold rating, citing concerns about the company’s future growth prospects. The analysts at Wells Fargo lowered their price target from $240 to $220, while RBC Capital reduced its target from $255 to $240. T-Mobile’s stock entered the day at just over $219 per share.
The Sprint Merger: A Home Run Deal
T-Mobile’s acquisition of Sprint in 2020 was a game-changer, providing massive cost synergies and a spectrum advantage over rivals as the market transitioned from 4G to 5G. Since then, T-Mobile has been outgrowing its competitors, taking market share and experiencing a significant inflection in free cash flow.
The Low-Hanging Fruit is Gone
However, according to the analysts, the “low-hanging fruit” of the acquisition is now behind the company. They also note that T-Mobile will see a slowdown in free cash flow growth as its tax rate reverts to that of a full taxpayer. Furthermore, the company’s valuation appears rich, with a forward earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 11 times and a forward free cash flow multiple of 15 times, compared to rivals Verizon (NYSE: VZ) and AT&T (NYSE: T) trading at 7 times EBITDA and 9 to 11 times free cash flow, respectively.
A Recession-Resistant Pick
Despite these concerns, T-Mobile remains an attractive option for investors, particularly those with a long-term horizon. The company’s strong cash flow generation and commitment to share repurchases make it an excellent recession-resistant pick. Additionally, its recent 35% dividend hike, although still yielding only 1.6%, has plenty of room for growth.
A Word of Caution
Before investing in T-Mobile, it’s essential to consider other options. The Motley Fool Stock Advisor analyst team has identified what they believe are the top 10 stocks for investors to buy now, and T-Mobile didn’t make the cut. These 10 stocks have the potential to produce monster returns in the coming years, making them worth exploring.
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