AST SpaceMobile upgraded to buy at Deutsche Bank as selloff called misread

Investing.com -- Deutsche Bank upgraded AST SpaceMobile (NASDAQ: ASTS) from Hold to Buy, maintaining a $93 price target and arguing that last Friday’s sharp selloff was a market misread. The price target implies substantial upside from Friday’s close of $50.97.

"We are upgrading ASTS to Buy and maintaining our $93 PT," wrote Deutsche Bank analyst Bryan Kraft. "The stock is down ~65% from its all-time high in May. We had downgraded the stock in May after the New Glenn launchpad explosion that introduced a material delay in ASTS’ launch plans, combined with valuation concerns. However, we believe now is an opportune time to become more constructive given the recent stock-price weakness, a number of positive developments/catalysts that we think have gone under the radar, and spectrum value that we estimate now comprises all but $10 per share in ASTS’ EV."

ASTS shares have fallen roughly 65% from their May all-time high, which — measured against Deutsche Bank’s $93 price target — implies substantial upside from current levels. With the stock trading well below the target, the implied upside to $93 represents the core investment proposition in Monday’s upgrade: Kraft is arguing that the selloff has pushed ASTS to a level where its spectrum holdings alone account for nearly all of its enterprise value, leaving the operational satellite D2D business at close to zero in the market’s pricing.

That spectrum-value framing is central to Kraft’s bull case. With ASTS shares so far off their peak, Deutsche Bank’s estimate implies the market is essentially pricing the company as a spectrum-holding asset, assigning almost no premium to its operational satellite direct-to-device (D2D) business. For investors, ASTS (NASDAQ: ASTS) is the primary publicly traded vehicle through which to own that bet on space-based mobile connectivity.

The upgrade reverses a May downgrade that Kraft linked directly to the New Glenn launchpad explosion and valuation concerns at the time. What changed Deutsche Bank’s view is a combination of price-to-value improvement and what Kraft describes as a series of positive catalysts the market has largely overlooked, chief among them, the growing probability that T-Mobile will ditch Starlink in favor of ASTS.

"We believe it is increasingly likely that T-Mobile will switch from Starlink to ASTS as its D2D partner (through the JV)," Kraft wrote. "Roughly coincident with the timing of the announcement that AT&T, Verizon, and T-Mobile reached a definitive agreement to form a D2D JV on Oct. 1; T-Mobile appears to have removed many (but not all) references to Starlink from its website."

The D2D joint venture announced by AT&T, Verizon, and T-Mobile on Thursday, October 1 is the structural backdrop for that shift. Deutsche Bank sees the JV as pulling the Big 3 carriers firmly into ASTS’ orbit, particularly as SpaceX continues to antagonize them on the terrestrial side.

On that point, Kraft took direct aim at Friday’s selloff. ASTS shares fell approximately 10% on Friday, October 9, alongside a 10-13% decline across AT&T, Verizon, and T-Mobile, all triggered by SpaceX’s announced purchase of 14 MHz of 800 MHz spectrum from Grain Management on Thursday, October 8. Deutsche Bank was blunt in its assessment of the market’s reaction to ASTS specifically.

"Furthermore, we think the -10% move on Friday was misguided since the 800 MHz spectrum SpaceX will be acquiring doesn’t make SpaceX more competitive with ASTS as an MNO partner for D2D, and ASTS isn’t targeting direct-to-consumer (for which SpaceX will primarily use the 800 MHz)," Kraft wrote.

For the major carriers, the SpaceX spectrum move is a genuine competitive threat, and Deutsche Bank argues it inadvertently helps ASTS by pushing the Big 3 closer to signing D2D deals. "SpaceX’s efforts to compete with the Big 3 MNOs in mobile continues to antagonize the Big 3 (and shrink their market capitalizations), pushing them even closer to ASTS. SpaceX’s announced purchase of 14 MHz of 800 MHz spectrum from Grain Management on October 8 was the latest shot across the bows of the Big 3, leading to a 10-13% decline in their stock prices on Friday (just the latest SpaceX-driven market-cap destruction for the telcos)," Kraft wrote.

In other words, Deutsche Bank’s thesis is self-reinforcing: the more aggressively SpaceX moves into mobile, the more urgent the Big 3’s need for a D2D partner becomes, and the more valuable ASTS’ position grows.

Original Article

You May Also Be Interested In

• Silence Therapeutics stock soars 125% on Merck acquisition
• Eos Energy gains as preliminary Q3 revenue beats Wall Street estimates
• Western Digital shares gain on broad sector strength, upgrade