On Thursday, JPMorgan increased its price target for T-Mobile US (NASDAQ:TMUS) shares to $230 from $220, maintaining an Overweight rating on the shares. The adjustment follows T-Mobile's Capital Markets Day held on Wednesday, where the company presented updated financial targets through 2027, surpassing previous estimates from JPMorgan.
T-Mobile anticipates its service revenue growth to be driven by a 2% annual rise in Average Revenue Per Account (ARPA) through 2027, which includes the sell-in of premium plans and potential price increases of legacy plans. Moreover, the company expects to continue gaining market share in key areas and to expand its Fixed Wireless Access (FWA) subscriber base to 12 million.
The forecasted robust growth in EBITDA is attributed to the factors driving service revenue, along with benefits from operating leverage and scale, and efforts in transformation and simplification through digitization. Consequently, JPMorgan has revised its estimates for T-Mobile's 2027 service revenue to $73.9 billion, core EBITDA to $37.4 billion, and free cash flow (FCF) to $18.3 billion, slightly below management's own projections.
Despite the positive financial outlook, T-Mobile's projected cumulative capital returns of $50 billion through 2027 fell short of investor expectations. The company plans to allocate $20 billion to other investments over the same period, suggesting the possibility of increased capital returns in the future.
JPMorgan's revised price target of $230 reflects a 14.2 times multiple on the estimated 2026 FCF per share, compared to the current 12.1 times multiple on 2025 estimates. This new target is supported by T-Mobile's leading position in industry growth and potential for subscriber expansion.
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, which is over 20% of its current market cap, and anticipates having $20 billion available for other mergers and acquisitions, debt reduction, or further capital returns by 2027.
In addition, T-Mobile has increased its quarterly dividend to $0.88 per share, a 35% rise from the previous quarter, indicating a robust financial position. Analysts from Evercore ISI and UBS have expressed confidence in T-Mobile's continued growth, with Evercore ISI raising its price target 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. These are recent developments in the company's ongoing growth strategy.
InvestingPro Insights
As T-Mobile US (NASDAQ:TMUS) garners attention with its ambitious financial targets and JPMorgan's subsequent price target increase, real-time data and insights from InvestingPro add depth to the investment narrative. With a market capitalization of $229.48 billion and a P/E ratio that stands at 24.48, T-Mobile is trading at a valuation that reflects its strong market position. Notably, the company's P/E ratio is expected to adjust to 22.31 over the last twelve months as of Q2 2024, suggesting a more attractive valuation relative to its earnings growth.
InvestingPro Tips indicate that T-Mobile has a perfect Piotroski Score of 9, highlighting its financial health, and it is trading at a low P/E ratio relative to near-term earnings growth, which could entice value investors. Moreover, the stock generally trades with low price volatility, a reassuring sign for risk-averse investors. Analysts predict the company will be profitable this year, and it has been profitable over the last twelve months, reinforcing the positive outlook presented by JPMorgan.
T-Mobile's role as a prominent player in the Wireless Telecommunication Services industry is underscored by its solid gross profit margin of 63.6% and an operating income margin of 21.26%, as per the last twelve months of Q2 2024 data. These figures reflect the company's ability to translate top-line growth into profitability effectively.
For investors seeking comprehensive analysis, InvestingPro offers additional tips on T-Mobile, including insights into the company's short-term liquidity, trading patterns, and historical returns. There are 9 more InvestingPro Tips available, which can be accessed for deeper investment research and decision-making at: https://www.investing.com/pro/TMUS
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