Merrill Lynch Reiterates Bearish Stance On T-Mobile US Inc (TMUS) Stock Despite Merger Talks

Merrill Lynch weighs in on the possible merger between T-Mobile and Dish Network, while reiterating an Underperform rating on T-Mobile stock

According to a research note published on Friday, Bank of America Corp’s (NYSE:BAC) Merrill Lynch has reiterated an Underperform rating on T-Mobile US Inc. (NYSE:TMUS) stock with a target price of $25. The sell-side firm also discusses recent news about a possible merger between T-Mobile and DISH Network Corp. (NASDAQ:DISH). T-Mobile stock is currently trading up 2.77% at $40.43 as of 2:39 PM EDT.

According to the reports from WSJ, Dish Network and T-Mobile remain in the formative stages of possible merger discussions despite that talks have been ongoing since last September. Merrill Lynch noted that one detail that has been apparently decided is that T-Mobile’s CEO, John Legere, would be the CEO of the joint venture.

Merrill Lynch analyst, David W. Barden, commented on the update and stated in the report: “We view the information in the article, if true, as an indication that either: a) DISH and Charlie Ergen are trying to flush out all potential bidders in the market for DISH, b) DISH is trying to assess the broader appetite for TMUS, or c) DT is trying to flush out bidders for TMUS.”

The firm’s long-held view is that Dish’s CEO Charlie Ergen acquires distressed assets at distressed valuation levels, and T-Mobile’s valuation using real EBITDA of 9.2x on 2015 estimate reflects a premium to historic and comparable levels. On a large perspective, Dish flushing out a bid for T-Mobile could leave Softbank looking for an exit vehicle from Sprint, which has long been Dish’s preferred target.

Merrill Lynch noted that the default argument says that Mr. Ergen wants to get into the wireless business; the firm disagrees and believes that Dish is looking to augment the satellite video business it has with wireless broadband capacity. The firm believes that the deal synergies are also beyond corporate functions.

Most of the analysts are bullish on T-Mobile stock, as 21 rate it a Buy, seven mark a Hold, while only two advocate a Sell. The analysts’ 12-month consensus price target on the stock is $38.76.

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