How Will The iPhone 16 Drive T-Mobile’s Q3 Results?

T-Mobile (NASDAQ:TMUS) is expected to publish its Q3 2024 results toward the end of October. Now T-Mobile stock has fared well rising by about 35% year-to-date, outperforming Verizon (NYSE:VZ) stock which gained about 22% over the same period.  We expect T-Mobile’s earnings to come in at $2.44 per share, up over 30% compared to last year, with revenue coming in at $20.1 billion, about 4% ahead of last year and 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 wireless phone plans and stable subscriber growth. See our analysis of T-Mobile Earnings preview for more details on what to expect when the company publishes earnings.

T-Mobile led the industry in terms of postpaid phone net additions over the previous quarter, Q2 2024, adding  777,000 connections. This was also a second-quarter record for the company. We expect net adds to remain relatively strong over Q3 as well considering that T-Mobile has been capturing a higher share of the U.S. wireless 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 launch of the iPhone 16 series of devices in mid-September is also likely to help the company drive subscriber additions. T-Mobile has indicated that the iPhone 16 lineup was selling better compared to last year’s series of smartphones over the first week of sales, with customers increasingly opting for the high-end Pro and Pro Max devices. Moreover, the company’s price increases carried out earlier in the year, 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 406,000 subscribers, the best in the industry, taking its total wireless broadband base to about 5.6 million customers.  The carrier is likely to continue witnessing an improvement in profitability led by the decommissioning of the legacy Sprint towers and the completion of the integration of the two networks.

T-Mobile stock has outperformed the broader wireless sector in recent years although returns over the last 4-year period have been far from consistent. Returns for the stock were -14% in 2021, 21% in 2022, and 15% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio is less volatile, with a collection of 30 stocks. And it 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 than the benchmark index; less roller-coaster ride, as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, 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?

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 $16.6 billion and $17.0 billion. That being said, T-Mobile’s valuation on a price-to-earnings basis does appear rich versus its peers. The stock trades at about 24x forward earnings, which is well ahead of rivals AT&T and Verizon, which both trade at high single-digit multiples. We value TMUS stock at $184 per share, about 10% below 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 10/13/2024
[2] Cumulative total returns since the end of 2016

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