With Deal in Sight, We've Raised Our Sprint and T-Mobile Valuations
The merger will create an exceptionally well-positioned wireless carrier.
As we move to a new model that assumes the merger will close shortly, we are increasing our Sprint (S) fair value estimate to $8.20 per share from $7.20 and our T-Mobile (TMUS) fair value estimate to $91 per share from $80.50. We assume that T-Mobile will be able to negotiate a more favorable share exchange ratio than the original agreement. We peg the ratio at 0.09 T-Mobile share per Sprint share, down from 0.103 originally, a level that reflects relative movements in net debt since the merger was announced. The original deal terms would put our Sprint fair value estimate at $9.40 and our T-Mobile fair value estimate at $88. If T-Mobile negotiates a 0.08 exchange ratio, our Sprint fair value estimate will fall to $7.30 and our T-Mobile fair value estimate will rise to $95.
We expect the combined company will generate about $75 billion in revenue during 2020, down from $77 billion in 2019, reflecting postpaid customer growth offset by the sale of Sprint’s prepaid business to Dish. Beyond 2020, we assume that T-Mobile’s integration efforts will be successful, with customer churn steadily declining from the blended levels that the combined company has posted recently. We further assume that the company is able to attract new customers, though with revenue per customer growing only modestly due to T-Mobile’s promises to regulators and competitive pressure. As a result, we forecast wireless service revenue will grow about 4% annually through 2024.
Michael Hodel does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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