T-Mobile’s capital expenditures in 2Q15
As we saw in the previous part of this series, T-Mobile (TMUS) plans to expand its 4G LTE (long-term evolution) coverage. In this part of the series, we’ll look at the company’s expected capital expenditures.
Wall Street expects a significant increase in T-Mobile’s capital investments in 2Q15. Based on Wall Street consensus as of July 17, 2015, T-Mobile’s capital expenditures are expected to grow ~20.3% year-over-year to ~$1.1 billion in 2Q15.
Capital expenditures to be funded by operating activities
On the positive side, Wall Street expects T-Mobile to generate sufficient cash flows to fund its capital investments in 2Q15. As you can see in the above graph, T-Mobile’s capital expenditures were significantly higher than the cash it generated from its ongoing operations in 1Q15.
Wireless carriers, including Verizon (VZ), AT&T (T), Sprint (S), and T-Mobile (TMUS) have to make recurring capital investments in order to manage the capacity of their networks. AT&T and Verizon, the two largest US wireless carriers, generate sufficient cash from operations to fund these recurring capacity additions. This helps them manage their leverage with relative ease.
Instead of investing directly in T-Mobile stock, you can take a diversified exposure to the company by investing in the iShares U.S. Telecommunications ETF (IYZ). IYZ held ~5.6% in T-Mobile as of June 30, 2015.
You can take an extremely diversified exposure to the company by investing in the iShares Russell 1000 Value ETF (IWD). The ETF held ~0.1% in T-Mobile at the end of June.