Raymond James: T-Mobile, Sprint Merger A Factor In 5G Race With China

The pending merger between T-Mobile US Inc. TMUS and Sprint Corp S has received approval from the Committee on Foreign Investment in the U.S.

The probability of the merger receiving the required regulatory approvals has risen from 65 percent to 80 percent, according to Raymond James.

The Analyst

Raymond James analyst Ric Prentiss maintained a Strong Buy rating on T-Mobile and raised the price target from $85 to $86.

The Thesis

Japan's Softbank owns around 84 percent of Sprint, and Germany’s Deutsche Telekom has a stake of around 63 percent in T-Mobile. The merger is being framed as a help to the U.S. in gaining a lead over China in 5G deployment, Prentiss said in a Tuesday note. 

The telecom merger is “picking up political momentum in the Trump administration,” which has increased the probability of it being approved, the analyst said, adding that a decision on the merger could be rendered early next year.

T-Mobile is attractive both on a standalone basis and as a merged entity, Prentiss said. T-Mobile’s standalone business is improving in terms of churn, net adds and ARPU, he said. 

The merged companies should be able to fully realize synergies in 2024, according to Raymond James. The new company's operational and non-operational value discounted back to year-end 2019 suggests a fair value of $87 per share, in the sell-side firm's view. 

Price Action

T-Mobile shares were down 0.91 at $64.28 at the time of publication Thursday. 

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