I've heard you need to be something of an egomaniac to be the
CEO of a Fortune 500 company.
Sure, the pay is great, but to compensate for the grueling
hours and the ultimate stress of being the scapegoat for any
corporate failure, you have to take no small amount of joy in
being No. 1.
That is why I make sure I pay attention whenever a CEO gives
an interview just before earnings are released.
Chief executives are supposed to be reserved and stick to
objective facts. Just a few misplaced words can front-run their
earnings report and incur the wrath of an angry board -- and
possibly the Securities and Exchange Commission.
That is what they are supposed to do. You see, not only are
CEOs the managerial leaders of their companies, but they are
often tasked with being their companies' biggest cheerleaders as
well. Combine this role with the subconscious need to tout their
success, and they often let clues slip.
Now, I'm not recommending you trade based only on reading
between the lines of a CEO interview. That's speculation and best
left to those with too much money and too little sense.
But combine a "CEO hint" with a company looking at earnings
growth of 425% next year and a new program that is gaining more
customers than its three largest rivals combined... well, that
might be something you want to look at.
The Wireless Wars Have Begun
John Legere, CEO of
T-Mobile USA (
, appeared on "Bloomberg West" on Oct. 10 after a media event the
night before launching the carrier's new Uncarrier 3.0 program.
Uncarrier 3.0 requires no annual service contract, offers
unlimited international data and text to more than 100 countries
and subscribers can upgrade their phone twice a year on
With 35 million subscribers, T-Mobile is already
the fourth-largest company in the U.S. wireless market.
With 35 million subscribers, T-Mobile is already the
fourth-largest company in the U.S. wireless market, and it made
huge gains in market share on its previous Uncarrier program.
Since the launch of Uncarrier in the second quarter of this year,
the company has added 1.1 million phone customers in the United
States, more than
Verizon Communications (
Legere, who has been the CEO of the company for about a year,
said T-Mobile is focusing on "customer pain points," such as
fears of overages and restrictions calling internationally.
Imagine: A phone company is actually listening to what people
want, and it's scoring huge subscriber growth in return.
Rival carriers were slow to react against T-Mobile's market
share gains in the second quarter, and the third quarter will
probably show more customer gains from AT&T and Sprint. You'd
better believe that they are going to fight hard against
Uncarrier 3.0 to keep T-Mobile from running away with a very
Sprint has tried to position itself as the low-cost provider
with its new $80 unlimited offer, just under T-Mobile's $90 plan
(including service and equipment charge). Verizon and AT&T
both charge $110 a month in service fees but may come to the
market with more competitive pricing in the near future.
While expectations for T-Mobile's earnings this year have
suffered the same downward revisions seen across the market,
expectations for next year have jumped 15% over the past three
months, to $0.85 a share. This would be more than a fourfold
increase over this year's expected $0.20 a share.
Legere also cited a speed test that shows T-Mobile's network
is LTE nationwide and testing faster than Verizon and Sprint, and
is testing faster than AT&T in half of the top 20 U.S.
cities. He went on to say that he almost slipped by announcing
that the company had the fastest 4G LTE, adding, "At some point,
I'm going to announce that we are the fastest (4G LTE)." There is
a chance that he may announce this at the earnings call but
that's not the only slip he made.
When pressed on the idea that the company is moving into the
lower price market, Legere said, "We are all going to announce
earnings over the next three weeks, so stay tuned to see how this
Legere is a straightforward and competitive CEO, perhaps even
more so than other chiefs. It may be reading between the lines,
but along with other comments in the interview, I think his
comment is a case of his wanting to pre-announce some great
results -- but holding back with a "just you wait and see."
While T-Mobile does not report until Nov. 5, Verizon will
report first on Oct. 17, followed by the other two carriers.
Investors may want to build a position in T-Mobile before Oct. 17
in case Verizon earnings show subscriber loss to another company.
I would set a buy-under price of $30; anything above this before
earnings may imply that an upside surprise has been baked into
Market share gains and CEO slip-up aside, the company may also
be a strong takeover target.
Dish Network (Nasdaq: DISH)
has been aggressively trying to find a wireless partner to
complement its satellite services, but it lost out in a fight
with Softbank to acquire Sprint with a final bid of $25.5
After adjusting for Sprint's stake in Clearwire and net debt,
the offer was for an enterprise multiple of 7.0 times earnings
before interest, taxes, depreciation and amortization (EBITDA).
T-Mobile currently trades for 6.4 times 2014 expected EBITDA,
well under what Dish was offering and cheap compared with
AT&T's valuation at 7.4 times next year's expected
A relatively cheap company that is changing the way wireless
carriers compete and seeing triple-digit earnings increases: That
is definitely something to brag about, and I think Legere just
did -- but no one was listening.
Risks to Consider:
Expectations for the quarter are already high with revenue
estimates more than 400% higher than the same quarter last year.
The company has missed earnings estimates for the past three
quarters, and the stock remains a high-risk, high-reward
Action to Take -->
Beyond its Nov. 5 earnings report, T-Mobile may offer a long-term
outperform against peers as its new program gives it a price
advantage and wins market share.
© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.