Will T-Mobile’s Momentum Hold Up In Q3?

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T-Mobile (NASDAQ:TMUS)  is poised to report its Q3 2022 results on October 27. We expect the carrier’s earnings to come in at about $0.70 per share, slightly ahead of consensus estimates and up about 27% compared to last year. We project that revenue will stand at about $20.1 billion, in line with consensus estimates and roughly flat versus last year. So what are some of the key trends that are likely to drive earnings? See our interactive dashboard analysis on T-Mobile Earnings Preview for more details on how T-Mobile’s revenues and earnings are likely to trend for the quarter.

Now T-Mobile’s key operating metrics have been improving across the board in recent quarters. Much of the momentum T-Mobile is witnessing is being led by its industry-leading 5G network which is helping it to win over more customers and raise prices. For perspective, over Q2 2022, the company added 723,000 postpaid phone subscribers and we expect the momentum to hold up in Q3 as well, as the company wraps up the integration of its merger with  Sprint and potentially sees lower customer churn. For perspective, over Q2 postpaid wireless phone churn stood at just 0.80%, coming in below Verizon for the very first time. T-Mobile has also made a dent in the broadband space, with its fixed wireless broadband offering adding an industry-leading 560,000 new broadband subscribers over the last quarter, compared to cable behemoth Comcast which added no net subscribers. T-Mobile’s margins could also see some improvement, driven by the decommissioning of Sprint’s legacy network, which is likely to be largely complete by the end of Q3, with additional savings on promotional expenses likely to come from the lower churn levels the company is seeing.

Now, although T-Mobile stock does appear a bit expensive, trading at about 21x consensus 2023 earnings, compared to Verizon and AT&T which trade at single-digit multiples, earnings are likely to pick up going forward as synergies from the Sprint deal are realized. This should also help cash flows pick up meaningfully. T-Mobile previously guided for a free cash flow of between $13 billion to $14 billion in 2023, up from levels of about $6 billion in 2021, while noting that the number could touch $18 billion in 2026. The rising cash flows are expected to help fund significant share buybacks and this could also support T-Mobile’s stock price. We value T-Mobile at about $163 per share, which is about 22% 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 of T-Mobile revenue for more details on the company’s key business segments and how revenues are likely to trend.

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Returns Oct 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 TMUS Return 0% 15% 136%
 S&P 500 Return 3% -23% 64%
 Trefis Multi-Strategy Portfolio 2% -25% 196%

[1] Month-to-date and year-to-date as of 10/18/2022
[2] Cumulative total returns since the end of 2016

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