Does T-Mobile Stock Have Any Upside Potential?

There were several price target increases for T-Mobile (TMUS) stock after the company’s earnings announcement on Monday. Raymond James raised its price target from $94 to $95, RBC raised it from $87 to $94, SunTrust Robinson raised it from $80 to $95, and KeyBanc raised it from $88 to $90. However, Cowen reduced its price target for T-Mobile stock, from $93 to $87.

Analysts raise price target for T-Mobile stock

Of the 21 analysts covering T-Mobile, ten suggest “buy,” seven suggest “strong buy,” and four suggest “hold.” Their mean target price of $89.79 for TMUS implies a 9.8% upside from its current $81.77. Their median price target for the stock is $93.

Key takeaways from T-Mobile’s Q3 earnings

Analysts raised their price targets after T-Mobile released strong results for another quarter. In the third quarter, T-Mobile’s revenue rose 2.0% YoY (year-over-year) to $11.1 billion, missing the analysts’ estimate of $11.3 billion. However, the company’s adjusted EPS rose 8.6% YoY to $1.01, beating analysts’ forecast of $0.96.

T-Mobile’s revenue was boosted by its service revenue rising 6.4% YoY to $8.6 billion from $8.1 billion, thanks to postpaid revenue rising 9.6%. The wireless carrier’s subscriber growth was better than expected in the quarter. It added 754,000 net postpaid phone customers, whereas analysts had expected 742,600. It also gained 62,000 net prepaid subscribers. T-Mobile’s postpaid phone churn rate continued to decline YoY in the third quarter, reaching a record low of 0.89%.

Capital expenditure

T-Mobile has been continuously spending to improve its network. In the third quarter, the company’s capex excluding capitalized interest rose YoY to $1.4 billion from $1.3 billion due to network building. The carrier continued deploying 600 MHz (megahertz) lower-band spectrum. T-Mobile has also started laying the groundwork for 5G (fifth-generation) technology.

This year, the company expects cash capex of $5.9 billion–$6.0 billion, excluding capitalized interest. In the third quarter, T-Mobile’s free cash flow rose 27.4% YoY to $1.1 billion.

Merger with Sprint

T-Mobile is confident that its $26.5 billion merger with Sprint (S) will close in next year’s first half. The merger must still survive a multistate lawsuit filed to stop the combination on antitrust issues. The trial is set to start on December 9.

The Department of Justice and the Federal Communications Commission have approved the deal. To learn more, read The T-Mobile-Sprint Merger: The End Is Near.

Stock performance

As of yesterday, T-Mobile stock had risen 28.6% year-to-date and 26.0% in the last year. The stock is trading 36.4% above its 52-week low of $59.96 and just 4.1% below its 52-week high of $85.22. The company’s market cap is $70.0 billion.

Meanwhile, AT&T (T) and Sprint had risen 33.4% and 6.4%, respectively, year-to-date. In the third quarter, AT&T reported adjusted EPS of $0.94 on revenue of $44.6 billion. Sprint is expected to report net losses in the quarter ended September 30.