T-Mobile's USCellular Acquisition Is Key to 5G Leadership and Market Expansion, Analyst Says

Benchmark analyst Matthew Harrigan reiterated a Buy rating on T-Mobile US, Inc TMUS with a price target of $200.

On Tuesday, T-Mobile formally announced its anticipated United States Cellular Corp USM transaction. It agreed to pay ~$4.4 billion for 4.5 million retail mobile customers across 21 states and 30% of the much smaller carrier’s wireless spectrum.  

USCellular would retain the entirety of its 2,100 towers (with T-Mobile leasing space for fifteen years) and interests in its Verizon Communications Inc VZ joint ventures. T-Mobile would also extend its current leases on 600 towers.  

Harrigan said the proposed deal is consistent with T-Mobile’s M&A strategy, which is disciplined and modest in scale after the transformative Sprint transaction. It follows the recently closed $1.3 billion acquisition of value-entrant Mint Mobile.  

The analyst stated that apart from T-Mobile exceeding soft spectrum caps in specific markets, predictable consumer unhappiness over primary MNO pricing will likely elicit election-year antitrust scrutiny from the Biden Administration.  

As per Harrigan, an FCC or DOJ challenge to the proposed USCellular transaction does not even demand the aggressive horizontal M&A strategies advanced by the DOJ’s Jonathan Kanter or even more extreme ambitions from FTC Chair Lina M. Khan.

According to the analyst, the proposed deal represents only about 2% of T-Mobile’s equity capitalization and deal approval risks and is immaterial to T-Mobile investment thesis.

The analyst expects T-Mobile to continue to benefit from the actuality and perception of its 5G leadership and share gains in smaller markets and enterprises.

Harrigan projected second-quarter revenue and EPS of $20.27 billion and $2.23.

Price Action: TMUS shares traded higher by 0.99% at $168.97 at the last check on Wednesday.

Photo by Mike Mozart via Flickr