Buoyed by a holistic growth model, T-Mobile US, Inc. TMUS has surged 56.9% over the past year compared with the industry’s growth of 37.6%, outperforming peers like AT&T Inc. T and Verizon Communications Inc. VZ.
T-Mobile is poised to benefit from its “Un-carrier Value Proposition”, which aims to prioritize customer satisfaction by offering competitive pricing for the latest products and services.
One-Year Price Performance
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TMUS Rides on 5G Bandwagon
T-Mobile continues to enhance its network infrastructure, including 5G and fiber networks, to provide best-in-class coverage and capacity across the nation. The infrastructure investments position it for growth by ensuring widespread access to its services, particularly in the rural region. T-Mobile's commitment to closing the digital divide underscores its dedication to fostering inclusive connectivity and driving socio-economic progress as the digital landscape evolves.
T-Mobile boasts a leadership position in the 5G market. The company’s 5G network covers 98% of Americans, or more than 330 million people in the country. Moreover, TMUS has an industry-leading postpaid customer growth with a record-low churn rate. In the third quarter of 2024, the company added 1.6 million postpaid net customers while postpaid net account additions were 315,000, both metrics being the best in the industry. Its dedicated 5G spectrum assets, including the mid-band 2.5 GHz spectrum, deliver superfast speeds and extensive coverage with superior propagation.
TMUS Taps Into USM Network Assets
T-Mobile has inked a definitive agreement with United States Cellular Corporation USM to acquire substantially all of the latter’s wireless operations along with 30% of its spectrum assets across several spectrum bands. The transaction, worth $4.4 billion, is likely to close midway next year, subject to the fulfillment of mandatory closing conditions and other regulatory approvals.
The transaction is likely to facilitate a competitive market with increased options and enable T-Mobile to expand its fast-growing home broadband offerings and fixed wireless products by tapping into the additional capacity and coverage created through the combined spectrum and wireless assets. The Un-carrier will also lease space on various US Cellular towers to ensure continued, uninterrupted customer service.
Solid Cash Flow Cushions TMUS
In the third quarter of 2024, T-Mobile registered an adjusted free cash flow of $5.16 billion, up 32% year over year. This accentuates efficient capital management and implies that the company is well-positioned to invest in growth initiatives and pay debt and dividends.
Backed by robust demand for its postpaid services and cost discipline, TMUS has presented a bullish outlook for fiscal 2024. The company expects postpaid net customer additions to be between 5.6 million and 5.8 million, up from 5.4 million and 5.7 million expected earlier. It anticipates cash from operating activities within $22-$22.3 billion compared with $21.8-$22.2 billion estimated earlier. TMUS expects adjusted free cash flow in the band of $16.7-$17 billion. Capital expenditure is projected to be in the range of $8.8-$9 billion.
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Estimate Revision Trend of TMUS
Despite solid wireless traction, earnings estimates for TMUS for 2024 have moved down 5.2% to $9.38 over the past year, while the same for 2025 has declined 12% to $10.30. The negative estimate revision depicts bearish sentiments for the stock.
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TMUS Plagued by Margin Erosion
To lure customers from competitors, T-Mobile has launched several low-priced service plans for consumers and small business entities. Moreover, management’s strategy of introducing several promotional activities such as free music streaming, video offers and price cuts on service plans and adoption of phone leasing plans, where equipment revenues are not booked upfront, creates a margin squeeze for the company.
End Note
By investing steadily in infrastructure for a leading 5G coverage, T-Mobile is well-positioned to bridge the digital divide and enhance the connectivity landscape nationwide. This is likely to translate into continued industry-leading postpaid subscriber growth. A solid cash flow position and an aggressive inorganic growth policy further accentuate efficient capital management and augur well for the long-term growth of the company.
However, a saturated wireless market and price wars owing to competitive pressure have eroded its profitability. The downtrend in estimate revisions further portrays skepticism about the stock’s growth potential. With a Zacks Rank #3 (Hold), T-Mobile appears to be treading in the middle of the road, and investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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United States Cellular Corporation (USM) : Free Stock Analysis Report
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T-Mobile US, Inc. (TMUS) : Free Stock Analysis Report
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