Investing.com -- Citi analysts lowered their rating on T-Mobile US Inc (NASDAQ:TMUS) stock to Neutral from Buy while maintaining the price target at $268. The telecom giant's shares fell 1.8% in premarket trading Friday.
According to the bank’s analysts, T-Mobile has demonstrated favorable growth compared to its sector and rivals, but its valuation remains high with a forward enterprise value to earnings before interest, taxes, depreciation, and amortization (FV/EBITDA) multiple of approximately 11x based on Citi's 2025 estimates.
This is significantly above the average of around 6 times for its competitors “and we do not see any immediate accelerators to quickly reduce T-Mobile’s premium,” analysts led by Michael Rollins said in a note.
Still, the analysts said there is potential for T-Mobile to incrementally increase value through market share gains, leveraging its Direct-to-Device (D2D) Satellite options, and pursuing synergistic acquisitions.
One such possibility is a merger with a large cable company, which could enhance T-Mobile's convergence strategy. However, Citi also pointed out that such a merger might dilute T-Mobile's revenue growth and affect its trading multiple negatively.
The research firm updated its financial model for T-Mobile to account for higher depreciation and the timing of free cash flow (FCF) contributions throughout the year.
Despite these adjustments, the Wall Street firm remains unconvinced that T-Mobile's premium can extend beyond an additional multiple point of EBITDA, limiting the stock's upside potential in the short term.
Citi also commented on the competitive risks within the wireless sector, suggesting that increased competition could lead to higher acquisition and retention (A&R) costs, which is unfavorable for category multiples, particularly for T-Mobile given its current premium.
“We could revisit our thesis if TMUS shares pull back and/or if financial growth can accelerate meaningfully,” the analysts concluded.
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