Goldman says T-Mobile is a great buy even if it doesn't get acquired

Key Points
  • Goldman Sachs reaffirmed its buy rating on T-Mobile and added the wireless carrier to its Americas conviction buy list.
  • The firm says the company will be able to return 66 percent of its market value to shareholders during the next five years through stock buybacks.
A T-Mobile store in Chicago, Illinois.
Daniel Acker | Bloomberg | Getty Images

Goldman Sachs told investors to buy T-Mobile shares, predicting the wireless carrier will thrive financially in the coming years, even if it doesn't participate in industry consolidation.

The bank added T-Mobile to its Americas conviction buy list and reiterated its buy rating.

"While investors have been focused on M&A given recent press reports, we believe that TMUS's valuation remains attractive based on two potential standalone catalysts: (1) material capital returns as TMUS delevers, and (2) upside to subscriber growth forecasts as TMUS expands distribution," analyst Brett Feldman wrote in the note to clients Friday. "Our analysis that T-Mobile could support a material share repurchase program on a standalone basis should limit downside risk if a proposed transaction is blocked by regulators."

The analyst raised his T-Mobile price target to $81 from $74, representing 23 percent upside from Thursday's close.

Feldman cited T-Mobile chief financial officer Braxton Carter's earnings conference call comments saying it is looking to return "cash to our shareholders." The analyst predicts T-Mobile will be able to return 66 percent of its current market value during the next five years based on his cash-flow and profit growth estimates.

However, the analyst isn't downplaying the potential for wireless industry consolidation.

"We believe market share leaders in the US fixed and mobile sectors may look to acquire companies that accelerate or improve their ability to deliver converged services. As such, we believe that TMUS may be positioned for a series of M&A," he wrote.

Bloomberg News reported Sprint approached T-Mobile-owner Deutsche Telekom to discuss a merger with the U.S. wireless carrier on May 12, amid an already hot telecom deal market.

T-Mobile's Carter also hinted the company would be open to a merger with Sprint and consolidation with other cable companies at a conference Thursday, according to a Reuters report.

"What about Sprint, T-Mobile and a coalition of Comcast and Charter and the value creation that could come out of that?" Carter said. "From a shareholder standpoint, that could be very, very exciting."

— CNBC's Michael Bloom contributed to this story.

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