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T-Mobile Stock Soars on Preliminary Q4 Results

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On January 7, T-Mobile (NYSE:TMUS) stock settled at $78.92, up about 0.38% for the day. Earlier in the trading session, the stock reported an intraday high of $79.51, not far from $85.22, its highest level since July 2019. The stock rose yesterday after the company announced its preliminary fourth-quarter results.

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T-Mobile’s preliminary results

According to T-Mobile’s preliminary customer report on January 7, it saw 1.3 million branded postpaid net customer additions in the fourth quarter of 2019. In the quarter, it added 1.00 million postpaid phone net customers compared to 754,000 net additions in the third quarter and 1.02 million net additions in the fourth quarter of 2018. However, Cowen analysts had expected T-Mobile to gain 904,000 postpaid phone net customers in the quarter. Postpaid subscribers are considered more profitable to wireless service providers than prepaid subscribers.

In the fourth quarter, T-Mobile added 77,000 prepaid net customers compared to 62,000 net additions in the third quarter and 135,000 net additions in the fourth quarter of 2018. In the quarter, the company reported a postpaid phone churn rate of 1.01%, which was in line with analysts’ estimates. The company reported a postpaid phone churn rate of 0.99% in the fourth quarter of 2018.

In 2019, T-Mobile reported a total of 7.01 million net customer additions versus 7.04 million net additions in 2018. For the last six years, the wireless carrier gained more than 5 million total net customers each year. At the end of 2019, it had a customer base of about 86.05 million, 8.0% higher than in 2018. In 2019, T-Mobile added 3.1 million postpaid phone net customers.

T-Mobile posted a postpaid phone churn rate of 0.89% in 2019. This rate was below its churn rate of 1.01% in 2018. T-Mobile’s postpaid phone churn rate declined YoY (year-over-year) due to ongoing improvements to the mobile operator’s network quality.

In February, T-Mobile is expected to report its detailed earnings results for the fourth quarter.

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T-Mobile and Sprint’s merger deal

T-Mobile is working with Sprint (NYSE:S) to complete its proposed $26 billion merger deal. In December, testimony ended in litigation filed by various Democratic state attorneys general to block the merger deal. The litigation is being led by the California and New York state attorneys general. The plaintiffs argue that the merger deal would reduce wireless competition and increase prices for consumers. Closing arguments for the trial are scheduled for January 15. A number of top executives from Sprint, T-Mobile, and Dish Network (NASDAQ:DISH) testified in the antitrust trial.

Last year, the merger deal was conditionally approved by the US Justice Department and the Federal Communications Commission. As part of the approval conditions, T-Mobile and Sprint agreed to sell certain wireless assets to Dish Network. If the merger goes through, Dish will acquire Sprint’s prepaid business for $1.4 billion and a chunk of wireless spectrum for $3.6 billion. The proposed new T-Mobile will be about the same size as the two biggest wireless service providers in the US, AT&T (NYSE:T) and Verizon.

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On January 7, during the Citi Global TMT West Conference, T-Mobile COO Mike Sievert stated that the company is willing to negotiate with the suing states. He said, “You saw it with the settlement with the FCC. Again with the DOJ, we have 19 states that have spoken out either through settlements or other — or their own rationale for the merger.”

He continued, “And then some of those states were litigants in the beginning, and they settled with us. So all along, we’ve been an open book about what we’d be willing to do and that we were willing to negotiate.” Sievert is confident that District Judge Victor Marrero will rule in favor of T-Mobile and Sprint.

Growth projection

Wall Street analysts expect T-Mobile to post sales of $11.8 billion in the fourth quarter. This figure would mark a rise of 3.3% YoY compared to $11.4 billion in the fourth quarter of 2018. Analysts also expect its earnings to rise 10.7% YoY to $0.83 in the fourth quarter. Currently, analysts expect 3.8% and 5.2% rises in the company’s 2019 and 2020 sales, respectively. Meanwhile, they expect 18.5% and 20.1% EPS growth in 2019 and 2020, respectively.

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Wall Street analysts expect Sprint to post sales of $8.2 billion in the third quarter of fiscal 2019 (which ended in December). This would mark a fall of 4.5% YoY from sales of $8.6 billion in the third quarter of fiscal 2018. Analysts also expect EPS of -$0.05 in the third quarter of fiscal 2019 compared to -$0.03 in the third quarter of fiscal 2018.

Analysts expect AT&T to post adjusted EPS of $0.88 on revenue of $47.0 billion in the fourth quarter.

5G launch

In December, T-Mobile launched a nationwide 5G network using a low-band 600 MHz spectrum. The service covers approximately 200 million people.

Meanwhile, AT&T has rolled out its 5G+ mmWave service for business customers in 35 cities and its low-band 5G service for consumers and business customers in 19 cities.

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Sprint drops Virgin Mobile

Sprint is dropping its prepaid Virgin Mobile brand and migrating the customers to its Boost Mobile prepaid brand. The subscriber migration is planned to begin in February. According to a FierceWireless report on January 7, “In most circumstances, customers can keep their current phone and will receive a comparable or better Boost Mobile service plan with no extra cost.” The report added, “Sprint’s shuttering of Virgin Mobile USA potentially aids DISH Network’s plans to start up a new wireless business built in part upon Sprint’s prepaid operations, simply because it won’t have to deal with the negative overhang from the decaying Virgin Mobile brand.”

Analysts’ recommendations for T-Mobile

Currently, T-Mobile stock has “buy” ratings from 17 out of 22 analysts, while five have “hold” ratings. The stock’s average target price of $91.05 implies a 15.4% upside over the next 12 months. Nomura Instinet has a target price of $96 on T-Mobile stock, up from $88 per share. Cowen and Company raised its target price to $96 per share.

Let’s look at analysts’ recommendations for the company’s peers:

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  • Analysts are neutral on Sprint stock. Among the 17 analysts that track the stock, 13 recommend “holds.” Analysts’ consensus target price on Sprint is $6.41, which implies a 12-month return potential of 24.7%.
  • Among the 30 analysts covering AT&T stock, 13 have “buy” ratings, 15 have “hold” ratings, and two have “sell” ratings. Analysts have given the stock an average target price of $39.02. Analysts’ 12-month target price is at a discount of 0.6% to AT&T’s current stock price. Read Jim Cramer Says AT&T Stock Is Worth Buying to learn more.

Stock performance

T-Mobile stock has risen 15.3% in the last 12 months. Meanwhile, the Dow Jones and the S&P 500 have risen about 19% and 25%, respectively. In comparison, AT&T stock has risen 27.1% in the last 12 months, while Sprint has fallen about 18.7%.

On January 7, TMUS was trading 7.4% below its 52-week high of $85.22 and 20.4% above its 52-week low of $65.56.

Based on Tuesday’s closing price, TMUS was trading as follows:

  • 2.7% above its 20-day moving average of $76.87.
  • 0.7% above its 50-day moving average of $78.41.
  • 0.3% above its 100-day moving average of $78.65.

T-Mobile has a 14-day relative strength index score of 60, which means that the stock is neither oversold nor overbought. The stock’s 14-day MACD is 0.99, which denotes an upward trading pattern.

Read The Latest Odds of the T-Mobile–Sprint Merger Approval and T-Mobile Stock Soars after Analyst Upgrade to learn more.

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