T-Mobile US (TMUS) is in the “driver’s seat” with a number of merger options, according to brokerage firm UBS, which also hiked its price target on the wireless carrier firm Wednesday and cut first-quarter earnings estimates for rivals AT&T (T) and Verizon Communications (VZ).
UBS analyst John Hodulik raised his price target on T-Mobile to 80 from 63. Merger talks among telecom firms have been on hold pending the end of a government auction of radio spectrum owned by local TV stations. The auction is expected to end in April.
“With M&A (mergers) coming into focus as the auction quiet period ends, we believe T-Mobile is in the driver’s seat,” said Hodulik in a report.
The UBS analyst shaved his first-quarter earnings for Verizon to 95 cents from 99 cents amid intensified wireless competition. Hodulik reduced AT&T’s first-quarter earnings estimate to 73 cents from 78 cents.
“After a highly competitive end to 2016, Q1 shows no signs of relief as (promotions) are expected to weigh on service revenue and margin trends for the group,” said Hodulik.
Hodulik says the most likely scenario has T-Mobile merging with Sprint (S), although a Trump Department of Justice could oppose reducing the number of national wireless firms to three from four. Makan Delrahim, a former DOJ lawyer in the Bush administration, is reportedly the front-runner to head the agency’s antitrust division.
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“We continue to believe a Sprint/T-Mo deal is likely given the benefits of moving from 4 to 3 players and the significant synergies it would create,” added Hodulik.
Verizon last month reintroduced unlimited data plans amid market share gains by T-Mobile and Sprint, which aggressively pushed unlimited promotions in late 2016.
One view among analysts is that the proliferation of unlimited-data offers among wireless firms could make it harder for cable TV firms Comcast (CMCSA) and Charter Communications (CHTR) to break into the wireless business. The cable TV firms hold rights to lease access to Verizon’s network on a wholesale basis, under a so-called mobile virtual network operator, or MVNO, deal.
Shares in T-Mobile climbed 1.3% to 63.27 at the close on the stock market today.