T-Mobile reported better-than-expected Q1 earnings, with earnings at $2.00 per share, but revenue remaining almost flat at $19.59 billion. The carrier continues to benefit from its 2020 acquisition of Sprint, leading the industry in postpaid phone net additions. T-Mobile added 532,000 connections in the quarter, capturing a higher share of industry net customer additions by deploying valuable mid-band spectrum for 5G technology. This spectrum offers a balance between speed and coverage compared to rivals like Verizon and AT&T, who initially focused on millimeter-wave spectrum.
The company has also made strides in the broadband market with its fixed wireless broadband offering, adding 405,000 subscribers in the last quarter. T-Mobile plans to expand into the wired broadband space by acquiring Lumos with private equity firm EQT to grow its fiber network. The carrier aims to increase Lumos’ connections from 320,000 to 3.5 million by 2028. Additionally, T-Mobile has seen improved profitability through the decommissioning of legacy Sprint towers and network integration, with free cash flow growing by 39% year-over-year to $3.3 billion in Q1.
TMUS stock has shown strong gains, rising 20% from $135 in early January to around $165 currently. However, the stock’s performance has been inconsistent, with returns of -14% in 2021, 21% in 2022, and 15% in 2023. T-Mobile underperformed the S&P 500 in 2021 and 2023, facing challenges like high oil prices and elevated interest rates. T-Mobile’s valuation appears rich compared to its peers, trading at about 18x forward earnings, well ahead of AT&T and Verizon. Despite this, T-Mobile’s growth potential and margin improvement opportunities make the valuation justified.
Looking ahead, T-Mobile’s free cash flows are projected to grow to between $16.4 billion and $16.9 billion in 2024, with the stock trading at less than 12x adjusted forward free cash flows. Trefis values T-Mobile at about $176 per share, 7% ahead of the current market price. The company’s deployment of 5G technology, customer-friendly policies, and potential for margin improvement through network closures position it for future growth compared to competitors. T-Mobile’s strong performance in the industry and its strategic acquisitions and expansions are likely to drive its stock price in the coming months.
In conclusion, T-Mobile’s Q1 earnings, strong net additions, broadband expansion, improved profitability, and valuation justify its position as a leader in the telecommunications industry. Despite facing challenges in the market and competing with industry peers, T-Mobile’s growth potential and strategic initiatives indicate a positive outlook for the stock. Investors may see potential for further gains in T-Mobile stock based on its strong performance and future growth prospects.
