In this clip from THE PITCH, we give you an inside look at how a research analyst's high-conviction stock idea becomes a manager's winning position.
Watch below as Communications analyst Andrew Freedman pitches Hedgeye CEO Keith McCullough on T-Mobile (TMUS), Freedman's new 'Best Idea' Long position.
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"I'm going with T-Mobile (TMUS). In terms of our #process, T-Mobile fits perfectly. It's been crushing it and will be taking market share away from Verizon and AT&T. They've been investing very aggressively in this 5G buildout.
They call it their "layered-cake" with a good mix of low-band, mid-band, and high-band spectrum. It was a great move to buy Sprint as they got a ton if mid-band spectrum and it put them about 12-18 months ahead of their peers.
As the churn rate from Sprint continues to come down, the synergies will improve and T-Mobile is a huge winner in this deal. In terms of our catalysts, we think they'll blow past their synergy targets. There is also a deleveraging opportunity, we may get buybacks instead, but I'll take either.
The most important trend to understand for T-Mobile is that we are in the knee of adoption for 5G. T-Mobile is ahead of the curve here - they're going to take a ton of the market share. The first 5G iPhone just hit the market last year, so we're a long way from this being fully adopted.
In terms of thematically how we're playing the space, we want to be long the share gainers and short the share losers. We also want to bet on that margin gap closing; that'll be good for T-Mobile and bad for your high-margin service providers like Verizon (which is also going to have to spend a ton of money on spectrum).
Finally, in terms of valuation, our bull case is 50%-60% upside. This is the fastest grower in telecom, this stock will be trading at a premium."
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The Call is our morning research call hosted by Hedgeye CEO Keith McCullough with our 40+ analyst research team. It helps small and large investors alike make better decisions via unique and investable stock/sector updates. Click here to learn more.