Is T-Mobile A Buy Ahead Of First-Quarter Earnings?

T-Mobile has an advantage in the 5G market, but it's unclear if their momentum will continue. They are currently in the middle of a stock buyback.

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May 10, 2023 • 4 min read

The outlook for TMUS is largely based on the expected synergies of the Sprint merger and a large share buyback. T-Mobile US's (TMUS) market share could also be boosted by its 5G wireless spectrum edge over AT&T and Verizon Communications.

T-Mobile's stock is up about 7% so far in 2023. In 2022, the TMUS stock was better than the S&P 500 during the bear market. T-Mobile's stock rose by nearly 21%, while the S&P 500 dropped more than 19%.

T-Mobile generates more cash, while Verizon and AT&T struggle with dividends and shareholder returns. TMUS is currently undertaking a large stock buyback.

Timothy Hottges, the chief executive of Deutsche Telekom (DTEGY), announced at a shareholder meeting held in early April that T-Mobile now has a majority share.

T-Mobile has regained its lead on the highly-prized, high-paying growth of subscribers. UBS analyst John Hodulik believes T-Mobile will add more subscribers to its network than AT&T and Verizon.

In a client note, he stated that "we expect a strong year start with industry-leading phone ads."

T-Mobile now owns more radio spectrum for 5G than AT&T and Verizon. This has given T-Mobile a significant advantage as 5G wireless service is rolled out.

T-Mobile can still pull other levers, even though 5G-related revenues have been disappointing for all wireless companies. T-Mobile's 5G spectrum advantage could help it attract more rural consumers and business customers.

T-Mobile will add 2 million fixed broadband 5G subscribers in 2022. This is up from the 546,000 that were added the previous year. T-Mobile plans to sign up between 7 and 8 million fixed broadband 5G subscribers by 2025. The services will be available to approximately 40 million US residents. households.

Private 5G network services will be used by enterprises to develop new business applications. The future of 5G wireless is in industrial Internet of Things (IIoT), remote health care (drones and robotics), autonomous driving and smart factories.

T-Mobile is able to make acquisitions with its ample cash flow.

T-Mobile purchased Mint Mobile in mid-March for $1.35bn cash and stock. Analysts say that Mint's direct-to consumer, online-only platform has been extremely popular among Gen Z and Millennials.

T-Mobile repurchased $3 billion in its own shares by 2022. The company has $11 billion left in its repurchase program until September 2023. The management has set an ambitious goal to repurchase shares up to $60 billion over the long-term.

The iPhone 14 (AAPL), which is currently being promoted by Apple, will increase wireless competition. Cable TV providers are bundling their wireless services with broadband products.

T-Mobile and Dish Network, (DISH), entered into a binding agreement in June 2022 to amend the master network services contract of 2020. T-Mobile plans to transfer more than 100,000 Boost-branded subscribers from former Sprint affiliates. T-Mobile also plans to enhance its roaming services in-market. Dish will also commit to $3.3 billion over the course of the contract.

TMUS has also come a very long way since U.S. regulatory agencies blocked AT&T’s proposed acquisition T-Mobile back in 2011. T-Mobile, a revitalized company in late 2013, launched its "Uncarriers"-branded campaign and aggressive price reductions.

T-Mobile reported earnings of $1.18 per share in the December quarter. This is up from 34c a year ago. This was higher than the analyst estimate of $1.07 a share.

Analysts had expected $20.64 billion but revenue fell 2.5%, to $20.27 Billion.

In line with expectations, service revenue increased 3.7% to $15.5 Billion. Equipment sales dropped 19% due to lower leasing activity, and a slower device sale as fewer customers upgraded.

Postpaid phone average revenue per subscriber grew 1.6% to $48.86

T-Mobile's guidance for 2023 calls for free cash flows of $13.1 billion to $14 billion, a little below its previous outlook.

Capital expenditures are expected to drop to $9.55 Billion from $14 Billion.

T-Mobile's fourth-quarter additions of postpaid subscribers were in line with expectations. The number of pre-paid subscribers added was 25,000. This is well below the 80,000 expected.

T-Mobile estimates that the number of postpaid subscribers will increase between 5 and 5.5 millions in 2023. It added 6.4 millions in 2022.

According to IBD StockCheckup, T-Mobile's stock has an IBD relative strength rating of 79. This is out of the maximum 99 possible. The best stocks have an RS Rating at least of 80. The relative strength line for TMUS has weakened and is a bearish sign.

TMUS's stock has an IBD Composite rating of 81, out of a maximum of 99.

IBD's composite rating combines five proprietary ratings into a single, easy-to use rating. The Composite Rating should be 90 or higher for the best growth stocks.

This rating is based on the price and volume fluctuations in a stock over the previous 13 weeks. On a scale of A+ to F, the rating measures institutional buying and sales in a particular stock. A+ indicates heavy institutional buying, while E signifies heavy selling. C is neutral.

T-Mobile's stock has a buy point of 154.48 on the weekly chart as of April 7. TMUS stocks trade about 3% under the entry point.

Reinhardt Krause is on Twitter @URL. Follow him for the latest updates on 5G wireless technology, artificial intelligence and cybersecurity.