This Takeover Target Could Pop 15% In 3 Months


When selecting companies to trade, I'm a big believer in having as many positive metrics in your favor as you can. Past price performance certainly is one of the biggest drivers of a stock, and that's something we can assess using charts and technical analysis. There's also the fundamental side of the equation.

#-ad_banner-#Yet, in certain circumstances, the biggest driver of a stock is actually a personality, with people betting on the prowess of a visionary CEO. Think Steve Jobs of Apple (Nasdaq: AAPL ) or Elon Musk of Tesla Motors (Nasdaq: TSLA ) .

Another personality-driven stock is wireless service provider T-Mobile US (NYSE: TMUS ) . CEO John Legere is known for his bold and colorful presentations, in which he often aims his criticism directly at the old guard in his industry. He also delivers services that directly challenge them.

Case in point is T-Mobile's offer to pay the often substantial early-termination fees of up to five family members when customers make the switch from other carriers to his "no contract" wireless service. While that proposal made a lot of rival wireless service providers nervous, customers loved it.

The share price performance over the past year has been impressive, with TMUS rising more than 75%.

Now the question is can TMUS keep building on those gains for the next several months? I suspect they can.

First off, there's the company's latest earnings report, which showed a huge gain in the number of wireless postpaid customers. During the first quarter, T-Mobile added 1.3 million subscribers to its rolls, a big number that clearly demonstrates the company is executing on its plan to take the fight to its behemoth rivals.

To get those new customers, T-Mobile did have to spend some money on marketing and those aforementioned early termination fees. The result was a loss of $151 million in the first quarter, down from a profit of $107 million in the same period last year. Perhaps more importantly, revenue for the quarter was 47% higher year over year at $6.9 billion, although part of that included the merger with MetroPCS Communications.

Wall Street's reaction to the earnings announcement was emphatically bullish, as shares surged 8% on May 1. That move was in part due to the number of new subscribers garnered by T-Mobile, but it also was due in large part to an article on Bloomberg that said rival Sprint (NYSE: S ) plans to push forward with a takeover bid for T-Mobile. The article said Sprint met with six banks last month to make debt arrangements to finance an offer.

The potential for a takeover by a big player like Sprint could mean huge gains for TMUS shareholders, as Sprint would surely have to pay a lot for the company that's hot on its trail and poised to take over the #3 spot. I think that if Sprint does make an offer, it would be at a price point substantially higher than the current share price.

If that takeover deal doesn't materialize, then you can bet it will be full throttle for T-Mobile in its efforts to continue capturing more market share from Sprint and other competitors. Either way, I think we are looking at another potential breakout in TMUS that could send the stock 15% higher before the next earnings report three months from now.

Action to Take -->
-- Buy TMUS at the market price
-- Set stop-loss 8% below entry price
-- Set initial price target at $35.75 for a potential 15% gain in three months

This article was originally published at
Wireless Takeover Target Poised for a Double-Digit Rally

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Investing Ideas , Stocks

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