T-Mobile Stock Has Traded Sideways This Year. Will It See Gains Following Q1 Results?

T-Mobile (NASDAQ:TMUS)  is set to report its Q1 2024 results on April 25. We expect the carrier’s earnings to come in at $1.88 per share, roughly in line with the consensus estimate. This would mark a growth of about 18% versus the previous year. We project that revenue will stand at about $19.90 billion, slightly ahead of the consensus, although this would remain roughly flat versus last year, due to potentially weaker equipment sales. So, what are some of the key trends that are likely to drive earnings? See our analysis T-Mobile Earnings Preview for more details.

T-Mobile has been seeing strong momentum with its postpaid business.  Over Q4 2023, the carrier added a total of 934,000 postpaid phone customers and added 3.1 million customers during 2023, leading the industry. In comparison, Verizon added just about 449,000 postpaid phone connections, while AT&T added 526,000 connections. T-Mobile has an edge over rivals, given its early deployment of mid-band spectrum for 5G wireless technology. T-Mobile’s focus on deploying this mid-band spectrum has paid off, as it offers a nice balance between speed and coverage, compared to the millimeter-wave spectrum – which offers ultra-fast speeds but weak coverage – that rivals Verizon and AT&T focused on earlier in their 5G deployments.  The company is also seeing a meaningful improvement in profitability led by the decommissioning of the legacy Sprint towers and the completion of the integration of the two networks. The company also reduced its workforce by about 7% last year, primarily in the corporate and back-office roles. We could see further improvements over Q1 2024 as well. Free cash flow grew by about 77% year-over-year to $13.6 billion in 2023 and is guided to increase to over $16.3 billion this year. T-Mobile has also made inroads into the broadband market with its fixed wireless broadband offering, using the excess spectrum it acquired through the Sprint deal. Over the last four quarters, the company has been adding over 500,000 broadband subscribers each quarter, outpacing incumbents such as Comcast.

TMUS stock has witnessed gains of 20% from levels of $135 in early January 2021 to around $160 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-year period. However, the increase in TMUS stock has been far from consistent. Returns for the stock were -14% in 2021, 21% in 2022, and 15% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TMUS underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could TMUS face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?

T-Mobile’s valuation on a price-to-earnings basis does appear rich versus its peers. The stock trades at about 18x forward earnings, which is well ahead of rivals AT&T and Verizon, which both trade at high single-digit multiples. That said, we think that the multiple is justified. While T-Mobile was traditionally known for its customer-friendly policies and value pricing, with the deployment of 5G the company has also emerged as one of the widest and best-performing networks. This should enable the company to grow at a quicker pace compared to rivals AT&T and Verizon, with the potential for margin improvement via the closure of the Sprint network.  We value T-Mobile at about $176 per share, which is about 10% ahead of the current market price. See our analysis on T-Mobile valuation: Expensive or Cheap for more details on what’s driving our price estimate for the company. Also, check out our analysis of T-Mobile revenue for more details on the company’s key business segments and how revenues are likely to trend.

[1] Returns as of 4/16/2024
[2] Cumulative total returns since the end of 2016

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