T-Mobile Shares Drop 4.3% After Analyst Downgrades

T-Mobile sees a notable 4.3% drop in shares despite Nasdaq gains. Analysts downgrade the stock from 'buy' to 'hold', reflecting concerns over future growth and free cash flow. Investors must weigh this cautious outlook against T-Mobile's past successes and solid fundamentals.

Date: 06-01-2025

AI Rating: 5

Analyst Downgrade Impact

Shares of T-Mobile (TMUS) declined significantly following a downgrade from analysts at Wells Fargo and RBC Capital, moving from a 'buy' to a 'hold' rating. This change in perception from analysts likely reflects concerns over the company's ability to replicate its previous performance.

Free Cash Flow Concerns

Both analysts indicated that T-Mobile would experience a slowdown in free cash flow growth as its tax rate reverts to standard rates. This is important since free cash flow is crucial for assessing a company's liquidity and capacity to return value to shareholders through dividends and repurchases.

Valuation Comparison

T-Mobile's valuation compared to its rivals, Verizon and AT&T, was highlighted. T-Mobile trades at 15 times forward free cash flow estimates, whereas Verizon and AT&T are valued at 9 to 11 times free cash flow. This disparity in valuation indicates that T-Mobile may be viewed as overvalued relative to its peers, especially given the projected slowdown in cash flow growth.

Current Performance and Future Outlook

Despite the downgrade, T-Mobile ended 2024 positively with a 40% increase, and it continues to invest in share repurchases and has recently raised dividends by 35%. These factors contribute to its appeal as a long-term investment. However, investors may need to temper their expectations in light of the analysts' comments on reduced growth potential.

Stocks: TMUS VZ T