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T-Mobile: What to Watch in Its Q2 Earnings

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On Tuesday, T-Mobile (TMUS) closed at $78.14—0.6% higher than its previous close, 35.0% higher than its 52-week low of $57.89, and 3.4% lower than its 52-week high of $80.93. As of Tuesday, the stock has risen 22.8% on a year-to-date basis. The company’s market cap was $66.8 billion. T-Mobile’s 12-month forward PE ratio, PE-to-growth ratio, price-to-sales ratio, price-to-book ratio, and price-to-cash ratio are 17.92x, 1.05x, 1.43x, 2.21x, and 8.39x, respectively.

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T-Mobile and Sprint merger

In April 2018, T-Mobile and Sprint (S) agreed to combine their operations. After the merger, Sprint will become part of T-Mobile. However, the companies haven’t secured all of the regulatory clearances to finalize the transaction. In fact, some states have filed a suit to block the T-Mobile–Sprint merger from happening. The states think that the merger could harm competition and raise costs for wireless consumers.

According to a CNBC tweet, T-Mobile and Sprint have to settle the deal by July 29. Otherwise, the Department of Justice will sue to block the proposed merger deal.

T-Mobile’s second-quarter earnings

T-Mobile is the third-largest wireless service provider in the US. The company wants to showcase its strength before its second-quarter earnings. T-Mobile’s second-quarter earnings are expected on Thursday.

T-Mobile will likely report an adjusted EPS of $0.97—a rise of 5.4% on a YoY (year-over-year) basis. Analysts expect T-Mobile’s total revenues to increase 5.3% YoY and reach $11.1 billion in the second quarter. The company will likely report 650,000 postpaid phone customer net additions.

In the first quarter, T-Mobile gained 656,000 postpaid phone net customers compared to 617,000 net additions in the first quarter of 2018. The YoY growth in postpaid phone customer net additions was mainly due to record-low churn.

AT&T (T) will likely report 80,000 postpaid phone subscriber net additions in the second quarter. Sprint will likely report a loss of 200,000 postpaid phone net subscribers.

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Prepaid customers

For the second quarter, analysts expect 20,000 prepaid customer net additions from T-Mobile compared to 91,000 net additions in the second quarter of 2018. In the first quarter, the company gained 69,000 net prepaid customers.

At the end of the first quarter, T-Mobile’s prepaid subscribers increased 1.6% YoY to 21.2 million. AT&T’s prepaid subscribers increased 9.6% YoY to 17.2 million. Meanwhile, Sprint’s prepaid subscribers fell 1.9% YoY to 8.8 million.

AT&T will likely report 100,000 prepaid subscriber net additions in the second quarter. Sprint will likely report 50,000 prepaid subscriber net losses.

Postpaid phone churn rate

For the second quarter, analysts expect T-Mobile to report a postpaid phone churn rate of 0.85% compared to 0.95% in the second quarter of 2018. In the first quarter, T-Mobile reported a record-low postpaid phone churn rate of 0.88% compared to 1.07% in the first quarter of 2018. The postpaid phone churn rate is lower due to increased customer satisfaction and loyalty from ongoing improvements to T-Mobile’s customer service and network quality.

AT&T will likely report a postpaid phone churn rate of 0.88% in the second quarter. Sprint will likely report a postpaid phone churn rate of 1.75%.

Analysts’ recommendations

Most of the analysts maintained a “buy” on T-Mobile stock. Among the 21 analysts that follow the stock, 18 recommended a “buy” rating, while three recommended a “hold” rating. None of the analysts recommended a “sell” rating. On average, analysts have given T-Mobile a 12-month target price of $83.83, which implies a rise of 7.3% from its stock price of $78.14.

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