T-Mobile stock (NASDAQ:TMUS) has fared very well this year, rising by about 11% year-to-date, compared to the broader S&P which remains down by about 7% over the same period. T-Mobile’s peers Verizon and AT&T are also down by about 3% and 9%, respectively year-to-date. There are a couple of factors that are driving T-Mobile’s recent outperformance. Covid-19 provided a boost to subscriber additions for U.S. wireless carriers, as people increasingly relied on phones and wireless devices through the pandemic. T-Mobile’s growth was among the strongest with the company adding about 2.9 million postpaid phone subscribers in 2021, well ahead of larger rival Verizon, while adding 5.5 million total postpaid subscribers through the year. Moreover, although the broader wireless market is expected to cool off in 2022, T-Mobile’s guidance for 2022 was surprisingly strong, with the company projecting 5 million to 5.5 million postpaid customer net additions, roughly in line with 2021 numbers. This is encouraging, as T-Mobile has typically been conservative with guidance in the past. Separately, T-Mobile’s Q4 2021 earnings, which were published in early February, were stronger than expected, and this has also helped the stock.
Now, although T-Mobile stock appears much more expensive compared to its peers, trading at about 50x consensus 2022 earnings, we think the multiple is justified for a couple of reasons. Firstly, T-Mobile remains the leader when it comes to 5G deployment. At the end of 2021, T-Mobile’s 5G network covered 310 million people, of which 210 million are covered by Ultra Capacity 5G. That’s more than double Verizon’s Ultra Wideband, and significantly more than AT&T’s 5G, and it is likely that a wide deployment could help the company with subscriber acquisition particularly outside of urban areas. T-Mobile’s profitability is also expected to pick up going forward. While earnings over the last quarter were weighed down by the complicated integration of Sprint’s wireless network with T-Mobile’s following their 2020 merger, T-Mobile should benefit as synergies from the deal are realized, with the company’s quickly decommissioning legacy Sprint cell sites. T-Mobile had previously guided for free cash flow of between $13 billion to $14 billion in 2023, up from levels of about $6 billion in 2021, with core EBITDA projected to come in at as much as $29 billion. The rising cash flows are expected to help the company fund significant share buybacks in the coming years, and this could also support its stock price.
We value T-Mobile at about $158 per share, which is about 25% 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 on T-Mobile revenue for more details on the company’s key business segments and how revenues are likely to trend.
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|S&P 500 Return||2%||-6%||99%|
|Trefis MS Portfolio Return||2%||-8%||262%|
 Month-to-date and year-to-date as of 3/21/2022
 Cumulative total returns since the end of 2016