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Buy TMUS on S Merger Rumors

By Matt McCallSep 29, 2017

The rumors of an approaching merger between T-Mobile US (TMUS) and Sprint (S) have been heating up over the last week. This idea has been floating around Wall Street for over a year now, and while the speculations have always proved to be premature, it finally looks like we’re getting close to the real deal.

In the end, the odds are good that a deal will get done. The combination is in the best interest of both companies and it will result in synergies that will ultimately lead to accretive cost savings.

However, there are still wildcards at play here – specifically the timing and the price. While a merger could be announced any day now, when exactly it will get approved by regulatory bodies is a whole separate issue. Because the deal is more of a merger than an acquisition or takeover, the pricing could get tricky.

But despite the fate of these companies seemingly being tied together, my outlook on each stock is vastly different. Let me tell you why:

T-Mobile is leading the way into NexGen technology, and an official announcement of a merger with Sprint could give the shares enough momentum to climb above $70. That’s uncharted territory for this stock, and it represents a lot of upside potential.

Aside from that, there are plenty of other reasons to like this company right now, including its expansion into narrowband as a play on the Internet of Things (IoT). While I expect the movement in TMUS to be determined largely by any rumors or lack thereof in the near term and for the stock to remain range-bound between $61 and $66, I fully anticipate higher prices in the coming weeks and months ahead.

Sprint, on the other hand, has an ugly chart. It’s been in a consistent downtrend since the beginning of the year, and fundamentally it’s expected to keep losing money. I believe its only saving grace is being bought out, and a merger with T-Mobile could certainly do the trick.

I’ll be watching the rumor mill closely in the coming days, and as long as some sort of deal is announced soon I expect both of these stocks to trade higher in the coming months. That said, there’s no question that one company stands out above the other.

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