T-Mobile's Valuation, Sprint Integration Risks Push RBC To Sidelines; Deutsche Bank Bullish

Shares of wireless carrier T-Mobile Us Inc TMUS received contrasting recommendations from two Wall Street firms this week as the mobile carrier completes its merger with Sprint. 

The T-Mobile Analysts: RBC Capital Markets analyst Jonathan Atkin downgraded shares of T-Mobile from Outperform to Sector Perform and maintained the price target at $110.

Deutsche Bank analyst Bryan Kraft initiated coverage of T-Mobile with a Buy rating and $140 price target.

3 Reasons For RBC's T-Mobile Downgrade: RBC's downgrade is based on the relatively full valuation of T-Mobile shares relative to the sell-side firm's price target and the presence of few identifiable near-term catalysts, RBC's Atkins said in a Tuesday downgrade note. 

Substantial spending on integrating Sprint is likely to pressure near-term cash flow, the analyst said. 

"We think investors have already priced into TMUS shares the potential longer-term synergies (including possible upside), though expect sentiment could moderate as the $15B of costs to achieve over 3-4 years start to pressure cash flows."

Third, the analyst said mobile promotions could drive customers onto lower-price plans.

Although T-Mobile remains RBC's preferred pick among wireless operators, the firm said it is recommending diversification into tower stocks that stand to benefit from the ramp in T-Mobile-Sprint integration spending. 

T-Mobile Has Massive Growth Opportunity, Deutsche Bank Says: T-Mobile, has a massive EBITDA and free cash flow growth opportunity driven by merger synergies, improved scale, an industry-leading spectrum position and a turnaround of the legacy Sprint operations, Deutsche Bank analyst Kraft said in a note. 

Additionally, the company is expected to benefit from continued subscriber momentum in pre-existing T-Mobile operations, the analyst said. 

TMUS Price Action: At last check, T-Mobile shares were rising 1.17% to $105.74. 

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