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Investing.com -- Oppenheimer downgraded T-Mobile US to Perform, warning that the wireless industry is heading into a period of slower growth and heavier competition that could pressure margins and curb the company’s long run of market share gains.
The brokerage said T-Mobile, which has outperformed rivals for years, is now more exposed as subscriber growth cools and competitors step up promotions.
"We think the company will have a difficult time beating subscriber and FCF estimates after a decade of outsized share gains and margin expansion," analysts said.
It cited Comcast’s recent broadband price cuts and Verizon’s plan to redeploy $4 bln in cost savings into richer handset deals and bundled content, moves that could drive a more aggressive price environment over the next one to two years.
Analysts said T-Mobile may need to respond by accepting slower share gains or lifting prices, steps that could weigh on valuation.
Shares already trade at a premium to peers at 16.3x earnings and 8.7x EBITDA, compared with 8.2x and 6.0x at Verizon and 11.5x and 6.3x at AT&T. The firm added that T-Mobile lacks the dividend support that peers offer if competition intensifies.
Oppenheimer also flagged rising pressure from cable operators, which have been offering free wireless lines in a bid to offset broadband losses. The firm said T-Mobile is likely the most exposed to that push.
While financial estimates were left unchanged, Oppenheimer lowered its longer term outlook for subscriber additions, expecting T-Mobile’s share of postpaid phone net adds to fall from about 38% to the mid 20s as competition bites.
"We believe that overall industry subscriber growth is set to slow and will intensify competition"