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Understanding T-Mobile’s Capital Allocation Strategy

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Sep. 29 2017, Updated 6:42 a.m. ET

T-Mobile’s capital allocation strategy

T-Mobile (TMUS) has usually taken a disciplined approach to capital allocation. It elaborated on its capital allocation strategy at the Goldman Sachs Communacopia Conference on September 14, 2017.

During the conference, Braxton Carter, T-Mobile’s chief financial officer, stated that as the company starts to generate a significant amount of cash flow, management has expressed interest in returning capital to shareholders, most likely through share buybacks. He added, “So our stated capitalization policy is 3 or 4x. And we think going up – we think some level of leverage for the business is helpful and constructive for the equity. Anything over 4x, we’d have to really think twice about it, but 4x, in that area, probably would be the target. We could lever it up.”

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Free cash flow

T-Mobile’s management anticipates generating FCF (free cash flow) CAGR (compound annual growth rate) of 45.0%–48.0% from 2016 to 2019. In 2Q17, T-Mobile reported FCF of $482.0 million compared to $419.0 million in 2Q16. In comparison, Sprint (S) reported adjusted FCF of $239.0 million in fiscal 1Q17 (quarter ended June 2017). Verizon (VZ) reported adjusted FCF of $4.3 billion in 2Q17, and AT&T (T) reported adjusted FCF of $3.7 billion during the same period.

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