Why T-Mobile Trumps Sprint In The Investing World

• Year-to-date, T-Mobile US Inc TMUS has gained nearly 50 percent, while Sprint Corp S is up just 1 percent.
• James Moorman from D. A. Davidson said that he expects this outperformance to continue as he initiated coverage on both stocks – T-Mobile with a Buy and Sprint with a Neutral.
• Moorman said that Sprint deserves a discount to valuations for other carriers because it does not pay a dividend and has slower revenue growth. Meanwhile, T-Mobile's lack of dividend is more than made up for with higher revenue and EBITDA growth.

D. A. Davidson's James Moorman said that not only is T-Mobile growing at a clip that may help its margins expand, but its revenue growth could help the company be a "takeout candidate by a cable company in late 2016 or early 2017." That potential helped Moorman slap a $50 price target on the stock – roughly 25 percent above current price at $40.37.

At Sprint, management is still "trying to turn the ship around," Moorman argued. Though the company may benefit from expanding margins, which Moorman forecasted would move from 17.4 percent in 2014 to 27.6 percent in 2017, the company is still highly levered with debt of $34.1 billion. Moorman's 12-month price target is $4.50, just 6.5 percent above current price.

That high leverage will impact Sprint when it comes to building out its network. The company will not participate in an upcoming 600MHz spectrum auction. T-Mobile on the other hand will participate – and Moorman said that the company may bid in the high single-digit millions for space.

T-Mobile's outperformance has not been confined to this year. In 2014, Sprint declined 61.5 percent, compared with a 12.5 percent decline in T-Mobile. Both of those names were handily outperformed by the S&P 500, which gained 11.8 percent.