Rising 15% In The Last 3 Months, How Will T-Mobile Stock Fare Following Q4 Earnings?

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TMUS: T-Mobile US logo
TMUS
T-Mobile US

T-Mobile (NASDAQ:TMUS)  is set to report its Q4 2023 results on January 27. We expect the carrier’s earnings to come in at about $1.90 per share, slightly ahead of the consensus estimate. This would mark a growth of about 60% versus the previous year. We project that revenue will stand at about $19.80 billion, compared to a consensus of $19.6 billion, although this would mark a 3% decline versus the previous year due to potentially weaker equipment sales. So, what are some of the key trends that are likely to drive earnings?

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. For perspective, over Q3 2023, the company added about 850,000 postpaid subscribers, the best in the industry. T-Mobile has also made steady inroads into the broadband market with its fixed wireless broadband offering which added an industry-leading 557,000 customers over Q3. This business could also incrementally drive the company’s Q4 results. We also expect to see a meaningful improvement in profitability led by the decommissioning of the legacy Sprint network, and potentially due to lower promotional expenses driven by the company’s low churn levels. Postpaid churn stood at 0.87% in Q3, a slight improvement versus the previous year.

Amid the current financial backdrop, TMUS stock has shown strong gains of 20% from levels of $135 in early January 2021 to around $165 now, vs. an increase of about 25% for the S&P 500 over this roughly 3-year period. However, the increase in TMUS stock has been far from consistent. Returns for the stock were -14% in 2021, 21% in 2022, and 16% in 2023 In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that TMUS underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Communication Services sector including GOOG, META, and NFLX, and even for the megacap stars TSLA, MSFT, and AMZN.

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In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, 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 versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, 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?

T-Mobile’s valuation does appear rich versus its peers. The stock trades at about 17x forward earnings, which is well ahead of rivals AT&T and Verizon, which both trade at high single-digit multiples. That said, we think that the company’s above-average service revenue growth and potential for margin improvement still make the stock worth a look.  We value T-Mobile at about $166 per share, which is about 3% 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.

Returns Jan 2024
MTD [1]
Since start
of 2023 [1]
2017-24
Total [2]
 TMUS Return 1% 16% 186%
 S&P 500 Return 0% 25% 114%
 Trefis Reinforced Value Portfolio -2% 35% 594%

[1] Returns as of 1/16/2024
[2] Cumulative total returns since the end of 2016

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