T-Mobile cut at Raymond James as thesis has played out

Investing.com -- Raymond James downgraded T-Mobile to Market Perform from Outperform on Friday, citing that its thesis on the stock has already materialized.

"We feel our thesis has played out and are not going to arbitrarily raise valuation multiples to justify a higher target vs. surging actual stock price," the firm wrote.

Raymond James had recently trimmed its rating from Strong Buy to Outperform, only to see the stock rally 13% since.

Now, with the stock trading above Raymond James' previous year-end 2025 price target of $221, the analysts are moving "to the sidelines."

T-Mobile's stellar execution following its Sprint merger has been widely praised. According to Raymond James, "TMUS has executed very well on what we believe may be the best merger ever in U.S. Telecom history, creating the strongest 5G spectrum and network position in the industry, driving ~$8B of annual synergies, all while remaining the value leader."

Since the end of 2021, T-Mobile's stock has surged 101%, outperforming peers Verizon (NYSE:VZ ) (down 19%) and AT&T (NYSE:T ) (up 19%).

However, the analysts are cautious about T-Mobile's current premium valuation. "TMUS now trades at 10.4x 2025 C-EBITDA, a 4.5x turn premium to AT&T/VZ trading at 5.9x (i.e., a 76% higher multiple)."

They believe the slower buyback activity also signals potential risks ahead. Raymond James says share buybacks were "very light in the quarter," totaling only $644M, compared to at least $2.2B per quarter since 3Q22.

The firm states this could be a sign of a stock getting too expensive too fast.

While T-Mobile's growth outlook remains solid, Raymond James notes it is decelerating compared to recent years. "While growth vs. peers remains robust at ~7% C-EBITDA CAGR in 2023-2027 guidance, this is slower than the 10.4% from 2021-2024," the note highlighted.

Ultimately, despite strong execution, Raymond James sees limited upside and believes the stock's premium valuation already reflects its growth.

Source: Investing.com