Why T-Mobile US Inc (TMUS) Stock Has More Upside Than You Think

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Wireless carriers are finding their groove again. After a rough 2015, T-MobileUS, Inc. (NASDAQ: TMUS ) reported a strong 2016. The fourth quarter was T-Mobile's best yet for revenue and customer growth, and churn fell to a record-low of just 1.28%.

Should You Buy T-Mobile US, Inc. (TMUS) Stock? 3 Pros, 3 Cons

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T-Mobile's business is seemingly on fire and none of the other telecoms are capable of extinguishing the TMUS stock hot streak.

It owes its success to differentiating itself from the competitors. On its press release, CEO John Legere said its "Un-carrier revolution" is upending the wireless industry and will continue to fuel growth in 2017.

TMUS Stock Earnings Rundown

By simply listening to its customers and resolving their pain points, more customers are signing up and few are leaving. TMUS highlighted Un-carrier moves in the past four years that included:

  • No more overage fees.
  • Upgrading anytime.
  • Free international data roaming.
  • Unlimited video and music streaming.
  • Unlimited plans.

What's more, TMUS added an average of 86 MHz of spectrum in the top markets. It has 700 MHz A-Block spectrum that includes coverage in Chicago and Montana. T-Mobile will brand this "Extended Range LTE."

For TMUS, every earnings metric rose in the fourth quarter: total net customers along with customer additions for both postpaid and prepaid. Adding 2.5 million customers for 2016 is no small feat. Quite the contrary: It is the best performance in the company's history.

Strong Forecast

T-Mobile forecasts a drop in whole net additions, however, as it encourages customers to sign up for higher average revenue per user (ARPU) plans over the "Lifeline" one. This should lead to service revenue growth and stabilization in ARPU. Its wider addressable market will add meaningfully to results this fiscal year.

In 2017, TMUS expects it will add between 2.4 and 3.4 million customers. The Ebitda forecast of up to $10.8 billion includes around $1 billion in leasing revenue, but excludes gains from spectrum. For the full year, T-Mobile is forecasting adjusted Ebitda in the range of $10.4 to $10.8 billion. Capex is projected between $4.8 to $5.1 billion. FCF (free cash flow) growth will be as high as 48%.

True to form, Legere's "Un-carrier" quote puts down the competition. But with the fastest growth in the industry, the CEO earned the right to boast the quarter's results:

"The competition just doesn't get that customers want to come first! That's three years in a row that we've added more than 8 million customers and taken all of the postpaid phone growth in the industry. The Un-carrier revolution continues in 2017!"

Comparable Investments

TMUS leads the other carriers in Ebitda margin growth over the past 10 years. AT&T Inc. (NYSE: T ) may trail TMUS in that metric, but it pays a healthy dividend of 4.8%. On the charts, AT&T is showing a "multiple top" at $42.50.

TMUS EBITDA Margin (TTM) Chart

Sprint Corp (NYSE: S ) may be up 245% on the markets in the past year, but its debt-equity ratio of nearly two times may add unnecessary risk for shareholders.

Verizon Communications Inc. (NYSE: VZ ) is down nearly 12% from yearly highs. It is in the process of buying Yahoo! Inc. (NASDAQ: YHOO ). VZ has plenty of cash and little debt, but search engine acquisition may not add meaningfully to revenue.

Bottom Line on TMUS Stock

Click to Enlarge The slow-moving TMUS stock will give a decent gain for a portfolio like this from a real trading account that yielded 2.2% monthly, but is highly diversified.

As T-Mobile's "Un-carrier" strategy resonates with customers, TMUS stock may continue its climb higher. And with higher ARPU comes higher profit margins.

As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.

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The post Why T-Mobile US Inc (TMUS) Stock Has More Upside Than You Think appeared first on InvestorPlace .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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