Why T-Mobile Shares Plunged on a Strong Day for the Nasdaq

Shares of T-Mobile (NASDAQ: TMUS) fell 4.3% on Monday as of 11:37 a.m. ET, a notable decline even as the Nasdaq Composite (NASDAQINDEX: ^IXIC) was up over 1.8% by that time.

T-Mobile was a massive winner in 2024, finishing the year up 40% with dividends included. However, with its shares perhaps reflecting the strength of its business and the full synergies from the 2020 Sprint merger, two Wall Street analysts both downgraded shares today.

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Wells Fargo and RBC move to the sidelines

Today, sell-side analysts at both Wells Fargo and RBC Capital downgraded T-Mobile from a buy to a hold rating. The analyst team at Wells lowered its price target from $240 to $220, while the RBC team lowered its target from $255 to $240. T-Mobile's stock entered the day at just over $219 per share.

T-Mobile's acquisition of Sprint back in 2020 was a home-run deal, as it not only led to massive cost synergies, but also gave the combined company a spectrum advantage over rivals as the market transitioned from 4G to 5G. Since then, T-Mobile has been outgrowing rivals, taking market share and seeing a huge inflection in free cash flow.

However, the "low-hanging fruit" of the acquisition appears to be now behind the company, according to both analysts. Furthermore, the analysts note that T-Mobile will see a slowdown in free cash flow growth as its tax rate reverts to that of a full taxpayer. The analysts also note T-Mobile trades a 11 times forward earnings before interest, taxes, depreciation, and amortization (EBITDA) and 15 times forward free cash flow estimates, whereas rivals Verizon (NYSE: VZ) and AT&T (NYSE: T) trade at 7 times EBITDA and 9 to 11 times free cash flow, respectively.

T-Mobile is still solid

The analysts may be correct that T-Mobile stock will struggle to achieve the huge gains of the past few years, but that doesn't mean it's a sell. T-Mobile still remains "best in class," even to these cautious analysts, and is plowing a lot of cash flow into share repurchases.

Furthermore, T-Mobile just raised its dividend 35% last year, but at just a 1.6% yield, that payout has lots of room to grow. So for those 10 years or so away from retirement, T-Mobile is an excellent recession-resistant pick that should pay a hefty yield by the time you are seeking retirement income.

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Wells Fargo is an advertising partner of Motley Fool Money. Billy Duberstein and/or his clients has positions in T-Mobile US. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.