T-Mobile Stock Drops as Analysts Downgrade Amid Slowing Growth and High Valuation

T-Mobile US (NASDAQ: TMUS) shares fell on Monday, following downgrades from two major Wall Street firms, Wells Fargo and RBC Capital Markets. The stock price dropped by approximately 4% to around $210.88, as analysts cited concerns about slowing subscriber growth and a high valuation as reasons for their downgrades.

Wells Fargo downgraded T-Mobile's stock from "overweight" to "equal weight" and lowered its price target from $240 to $220. The analysts noted that while T-Mobile is still expected to outpace its competitors in terms of subscriber and financial growth, its pace of growth is decelerating as the business matures and moves further past the synergies gained from the Sprint integration. They also pointed out that the industry-leading subscriber and EBITDA growth that T-Mobile has experienced is already priced into the stock, making it less compelling compared to its peers, AT&T and Verizon Communications.

RBC Capital Markets also lowered its rating on T-Mobile, from "outperform" to "sector perform," and cut its price target from $255 to $240. The analysts at RBC noted that T-Mobile's tax rate is expected to revert to that of a full taxpayer, which will lead to a slowdown in free cash flow growth. Additionally, T-Mobile's valuation multiples, such as its forward EBITDA and free cash flow multiples, are higher than those of its competitors, Verizon and AT&T.

These downgrades come as T-Mobile continues to face challenges in maintaining its growth momentum. The company has been a massive winner in 2024, finishing the year up 40% with dividends included. However, with its shares perhaps reflecting the strength of its business and the full synergies from the 2020 Sprint merger, two Wall Street analysts both downgraded shares today.

T-Mobile's acquisition of Sprint back in 2020 was a home-run deal, as it not only led to massive cost synergies but also gave the combined company a spectrum advantage over rivals as the market transitioned from 4G to 5G. Since then, T-Mobile has been outgrowing rivals, taking market share and seeing a huge inflection in free cash flow. However, the "low-hanging fruit" of the acquisition appears to be now behind the company, according to both analysts. Furthermore, the analysts note that T-Mobile will see a slowdown in free cash flow growth as its tax rate reverts to that of a full taxpayer.

T-Mobile is still solid, and the analysts may be correct that T-Mobile stock will struggle to achieve the huge gains of the past few years, but that doesn't mean it's a sell. T-Mobile still remains "best in class," even to these cautious analysts, and is plowing a lot of cash flow into share repurchases. Furthermore, T-Mobile just raised its dividend 35% last year, but at just a 1.6% yield, that payout has lots of room to grow. So for those 10 years or so away from retirement, T-Mobile is an excellent recession-resistant pick that should pay a hefty yield by the time you are seeking retirement income.




In conclusion, the downgrades by Wells Fargo and RBC Capital Markets reflect concerns about T-Mobile's slowing subscriber growth, decelerating free cash flow growth, and high valuation. While T-Mobile remains a solid company, investors should be aware of these challenges and consider the potential impact on the stock's future performance. However, T-Mobile's strong fundamentals and growth prospects may still make it an attractive investment for long-term investors.

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