Scotiabank has updated its financial outlook for T-Mobile US (NASDAQ: NASDAQ:TMUS), raising the price target to $215.50 from the previous $197.00, while continuing to endorse the stock with a Sector Outperform rating.
The adjustment followed T-Mobile's recent analyst day where the company outlined its growth strategy for the upcoming years.
During the event, T-Mobile presented its operational plan, which forecasts robust growth in wireless subscriber numbers, service revenue, and free cash flow (FCF) in comparison to its U.S. counterparts. T-Mobile's strategy is centered around enhancing customer experience, a pivot from the cost-cutting focus prevalent in the telecom sector.
Scotiabank anticipates a 5% compound annual growth rate (CAGR) in service revenue for T-Mobile up to the year 2027. Additionally, the company is expected to achieve an 8% adjusted FCF growth. Noteworthy is that these projections do not factor in any of T-Mobile's pending acquisitions.
The analyst projects that T-Mobile's financial performance will enable substantial returns to shareholders, estimating capital returns of $50 billion through 2027. Furthermore, the company is expected to retain approximately $20 billion in cash, which could be used for further debt reduction or potential mergers and acquisitions.
The price target increase is attributed to Scotiabank's revised medium-term growth rate in their discounted cash flow (DCF) analysis, from 3% to 5%, and an updated net asset value (NAV) valuation extended to the year 2026.
In other recent news, T-Mobile has presented an optimistic financial outlook for 2027, projecting service revenue between $75 billion and $76 billion, EBITDA of $38 billion to $39 billion, and free cash flow in the range of $18 billion to $19 billion.
The company plans to return $50 billion to shareholders and anticipates having $20 billion available for other mergers and acquisitions, debt reduction, or further capital returns by 2027. These are recent developments in the company's ongoing growth strategy.
T-Mobile has also announced a 35% increase in its quarterly dividend to $0.88 per share, indicating a robust financial position. Analysts from JPMorgan, Evercore ISI, and UBS have expressed confidence in T-Mobile's continued growth, with JPMorgan raising its price target to $230 and Evercore ISI to $220.
T-Mobile has also announced strategic partnerships with OpenAI and NVIDIA (NASDAQ:NVDA) to drive innovation in radio access networks and enhance customer experiences. This aligns with the company's aim to acquire 12 million 5G broadband customers by 2028 and boost its EBITDA by $10 billion by 2027 as part of a comprehensive three-year growth strategy.
InvestingPro Insights
In light of Scotiabank's optimistic outlook on T-Mobile US (NASDAQ:TMUS), InvestingPro data and tips provide additional context for investors considering the telecom giant's stock. T-Mobile boasts a strong Piotroski Score of 9, indicating good financial health and suggesting that it could be a resilient pick for investors (InvestingPro Tip #0). Furthermore, the company is trading at a low P/E ratio relative to near-term earnings growth, which could signal an undervalued stock with potential for appreciation (InvestingPro Tip #1).
From a financial standpoint, T-Mobile's market capitalization stands at a robust $229.48 billion. Its P/E ratio is currently 24.48, with an adjusted P/E ratio for the last twelve months as of Q2 2024 at 22.31, indicating a reasonable valuation given its earnings. Additionally, the PEG Ratio for the same period is 0.42, which might attract investors looking for growth at a reasonable price. T-Mobile's revenue growth for the last quarter of Q2 2024 was 3.0%, showcasing a steady increase in its top-line figures.
For investors seeking more detailed analysis, there are 10 additional InvestingPro Tips available, offering a deeper dive into T-Mobile's financial health and market position. These tips can be accessed through the InvestingPro platform for those looking to enhance their investment strategy with expert insights.
With T-Mobile's strong financial metrics and a positive outlook from analysts, investors may find the telecom company to be an attractive option. The InvestingPro data and tips underscore T-Mobile's potential for growth and stability in the competitive telecommunications sector.
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