Rising Plan Rates Will Drive T-Mobile’s Q2 Results

T-Mobile (NASDAQ:TMUS) is expected to publish its Q2 2024 results toward the end of July. Now T-Mobile stock has fared reasonably well rising by about 12% year-to-date, marginally outperforming Verizon (NYSE:VZ) stock which gained about 10% over the same period.  We expect T-Mobile’s earnings to come in at $2.31 per share, up 23% versus last year, with revenue coming in at about $19.6 billion, about 2% ahead of last year and roughly in line with consensus estimates. T-Mobile’s growth for the quarter is likely to be driven by higher wireless services revenues, with migration to higher value 5G plans and stable customer growth, although equipment sales are likely to remain sluggish. See our analysis of T-Mobile Earnings preview for more details on what to expect when the company publishes Q2 results.

T-Mobile led the industry in terms of postpaid phone net additions over Q1 2024, adding  532,000 connections for the quarter and we expect the trend to continue. T-Mobile has been capturing a higher share of industry net customer additions led by its deployment of valuable mid-band spectrum for 5G wireless technology. The mid-band spectrum offers a good 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 initially focused on. Moreover, the company’s recent price increases and a shift to more premium plans could help drive its per-user revenues higher for the quarter. T-Mobile has also made steady inroads into the broadband market with its fixed wireless broadband offering, using the excess spectrum it acquired via the Sprint deal. Over the last quarter, the company added 405,000 subscribers, the best in the industry, taking its total wireless broadband base to about 5 million customers. The carrier has also been witnessing a meaningful improvement in profitability led by the decommissioning of the legacy Sprint towers and the completion of the integration of the two networks. Free cash flow grew by about 39% year-over-year to $3.3 billion over the first quarter.

TMUS stock has shown strong gains of 35% from levels of $135 in early January 2021 to around $180 now, vs. an increase of about 50% 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 mega-cap 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 best networks given its wide and speedy coverage. 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. Moreover, free cash flows are projected to grow to between $16.4 billion and $16.9 billion in 2024, meaning that the stock trades at just about 12x adjusted forward free cash flows. We value T-Mobile at about $177 per share, which is roughly in line with 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 7/13/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates