T-Mobile: What Do We Think?

Ticker: TMUS

Rating: Overweight

Price Target: $145

Target Date: 7/2021

💡 Summary

Late last week T-Mobile (TMUS) reported another quarter of solid growth. T-Mobile’s earnings beat consensus analyst expectations for both EPS and revenue all the while adding over 825K phone customers! This growth sets up TMUS nicely for 2021 as they should finally be able to realize some synergies long overdue. While management’s guidance for the year was conservative due to some high expense headwinds, we are still reiterating our overweight rating on the stock and are increasing our price target from last year!

🔑 Key Takeaways

Let’s review T-Mobile’s earnings report and discuss some details on why we are maintaining our overweight rating on the stock:

1) T-Mobile, again grew and reported a solid Q4, closing out an otherwise impressive 2020 performance. The 825K customer ads actually led the entire industry despite the massive churn of customers from Sprint. Looking more closely at this figure, we are extremely impressed with the growing strength of their business as they outperformed Verizon (their biggest competitor) in adding more customers!

2) Revenue, EBITDA and overall margins came in ahead of consensus expectations. And not only were they ahead but they each blew past expectations! Looking at a tough environment due to COVID and Sprint, this truly signals the strength of their business and silences many doubters.

3) The only real miss in our opinion was on ARPU (average revenue per customer). What this metric shows is that each customer produced less revenue than we anticipated. If TMUS can increase ARPU in 2021, that means that they should be making more money from the same amount of customers, hopefully helping revenue and increasing margins by keeping costs relatively flat as each user is worth more money!

Conclusion:

Looking forward however, the management team did give a more conservative guidance for 2021 than we were anticipating. While we do agree that the upcoming infrastructure costs, integration costs and overall economic demand will hamper growth, we believe the team is over-discounting the strength of their underlying business in fighting through this type of adversity. We believe this “over conservatism” while be shown directly during their upcoming analyst day when they will present updates to deal synergies and the strategic goals of the business. We also would not be surprised to get a more comprehensive update to the status of their 5G network, which should again spark more investor enthusiasm. It is also not beyond TMUS to announce more share buybacks that would increase value per share, thus financially engineering an increase in stock price! We will look towards this event with much anticipation and until then will remain overweight the stock!