The outlook for TMUS stock boils down to execution issues. The merger with Sprint remains key as observers wait to see if T-Mobile US (TMUS) smoothly integrates the two wireless networks. Critical is whether it can cut costs while retaining customers.
The other issue for T-Mobile stock is whether management capitalizes on a 5G wireless spectrum advantage vs. AT&T (T) and Verizon Communications (VZ).
XAfter hitting an all-time high of 150.20 on July 16, T-Mobile stock swooned. TMUS stock also fell at the start of 2022.
But management guidance for 2022 apparently eased some worries on Wall Street. T-Mobile stock popped on its fourth-quarter earnings report. Analysts expect a stock buyback to start in late 2022 or 2023.
"TMUS stock materially underperformed in 2021 as EBITDA expectations (for 2022) faded a bit and investors shed wireless stocks on concerns around competition and eventual post-pandemic phone net add slowdown, as well as macro shifts," Credit Suisse analyst Douglas Mitchelson said in a recent note to clients. "With this (guidance) update, the TMUS share gain/synergy-driven margin expansion story is intact, particularly for 2023 — we see 10% or more EBITDA growth in each of 2022 —2024."
TMUS Stock: Subscriber Growth To Slow?
One concern is that wireless competition will intensify. More former Sprint customers could switch to AT&T or Verizon. AT&T has led the industry in postpaid phone subscriber additions for the last three quarters.
Before the June 2021 quarter, T-Mobile had led the industry in postpaid phone subscribers for about seven years. High-margin postpaid phone subscribers spend the most monthly.
Meanwhile, cable TV companies are expected to ramp up wireless promotions in 2022. T-Mobile added 5.84 million postpaid lines in 2021, up from 5.63 million in 2020.
In 2022, the company forecast postpaid additions in a range of 5 million to 5.5 million vs. estimates of 4.66 million. About half of the postpaid lines added in 2022 will be phone customers, T-Mobile estimated.
"While accelerated Sprint churn worried investors in recent months, management put most concerns to bed with its 2022 outlook, particularly in light of their historical conservatism," Morgan Stanley Simon Flannery said in a note.
He added: "Some 64% of Sprint customers have migrated across to the T-Mobile network with the CDMA shutdown in Q1 and LTE shutdown in Q2 likely completing most of the remaining migrations."
T-Mobile and Sprint forecast that some $6 billion in back-office cost savings would result from combining billing operations and information technology departments. The companies also plan to combine wireless networks, cellphone towers and retail locations.
T-Mobile Stock Buyback A Catalyst?
T-Mobile stock could be pressured in 2022 by recent agreements. Dish Network (DISH) has signed a 10-year network services agreement with AT&T. It will replace T-Mobile as Dish's wholesale network partner.
In addition, Verizon has closed the acquisition of Tracfone, a provider of prepaid wireless services. As a result, Verizon is now the biggest provider of prepaid services.
Deutsche Telekom (DTEGY) in September 2021 announced the increase of its TMUS stock stake by 5.3% to 48.4% through a transaction with Japan's Softbank.
A potential stock buyback could provide upside for T-Mobile stock.
At its investor day in March 2021, T-Mobile said it's targeting free cash flow of $13 billion to $14 billion in 2023 and $18 billion in 2026 for TMUS stock. The company laid out plans to repurchase up to $50 billion of its own stock over a three-year period.
Timing for the buyback is unclear. It could start in 2023 or before, T-Mobile has told analysts. The timing could depend on the build out of T-Mobile's 5G wireless network.
T-Mobile Stock: 5G Mid-Band Network Build-Out Key
With the acquisition of Sprint, the new T-Mobile owns more mid-band radio spectrum than AT&T or Verizon. That could provide an important edge as 5G wireless services are rolled out. Mid-band airwaves provide much faster 5G data speeds with better coverage than low-band spectrum.
At the end of 2021, T-Mobile's mid-band 5G network reached 210 million people. T-Mobile expects the mid-band 5G network to cover 300 million by 2023.
While trailing T-Mobile currently, Verizon and AT&T are racing to deploy their own 5G networks using mid-band spectrum. Promotional battles could heat up when Apple introduces new iPhones in late 2022, analysts say.
Also, T-Mobile has launched 5G fixed broadband services to residential customers, taking on cable TV companies. In 2021, T-Mobile reached 646,000 fixed broadband subscribers. It's targeting 7 million to 8 million customers by 2025.
In the December quarter, T-Mobile earnings were 34 cents on an adjusted basis, down from 60 cents in the year-earlier period. The wireless services provider said revenue rose 2% to $20.78 billion.
Analysts expected T-Mobile to report adjusted earnings of 18 cents a share on revenue of $21.07 billion.
EBITDA — earnings before interest, taxes, depreciation and amortization — rose 9.6% to $6.3 billion, in line with estimates. Meanwhile, for fiscal 2022, T-Mobile forecast EBITDA growth of 10% to a range of $25.6 billion to $26.1 billion, improving from last year's 7% EBITDA growth, UBS analyst John Hodulik said in a note.
Also, T-Mobile in early January preannounced some wireless metrics. T-Mobile added 844,000 postpaid phone subscribers, slightly below estimates of 854,000.
T-Mobile Stock: Will 5G Wireless Boost Revenue?
In addition, TMUS stock has come a long way since U.S. regulators blocked AT&T's proposed acquisition of T-Mobile in 2011. A rejuvenated T-Mobile in late 2013 unleashed its "Uncarrier"-branded marketing campaign along with aggressive price discounts.
Also, T-Mobile upgraded its wireless network, closing a performance gap with Verizon. The strategy paid off as T-Mobile grabbed the lion's share of coveted "postpaid" subscribers that spend more on wireless data services.
However, growth has cooled since 2017 for all U.S. wireless companies. The big question is whether 5G wireless networks will create new revenue streams.
5G wireless networks will provide faster data speeds to consumer devices. Two-hour movies will be downloaded in 5 seconds vs. 6 minutes on a 4G network. Even so, the growth of some 5G stocks depends on the emergence of new consumer smartphone apps.
On the enterprise side, private 5G network services are expected to drive new business uses. The future of 5G wireless lies in the industrial Internet of Things, remote health care, drones and robotics, autonomous driving, and smart factories.
Also, T-Mobile in January acquired Octopus Interactive. Terms were not disclosed. Octopus Interactive is a rideshare-focused advertising startup.
Is TMUS Stock A Buy Right Now?
TMUS stock tumbled in August after a major customer data breach that impacted over 54 million customer accounts.
T-Mobile stock owns a IBD Relative Strength Rating of 41 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an RS Rating of at least 80.
TMUS stock holds an IBD Composite Rating of 62 out of a best possible 99, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. The best growth stocks have a Composite Rating of 90 or better.
TMUS stock has an Accumulation/Distribution Rating of B-minus. That rating analyzes price and volume changes in a stock during the prior 13 weeks of trading. The rating, on an A+ to E scale, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of a C grade as neutral.
As of Feb. 7, T-Mobile stock trades well below an entry point. It needs to form a new base to be actionable.
Check out IBD Stock Lists and other IBD content to find dozens more of the best stocks to buy or watch.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.
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The post Is T-Mobile Stock A Buy? 2022 Guidance Soothes Worries Amid Buyback Hopes appeared first on Investor's Business Daily.
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