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What’s T-Mobile’s Updated Outlook for Fiscal 2020?

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Last week, T-Mobile (NYSE:TMUS) reported strong financial results for the fourth quarter of 2019. The company’s net sales grew 3.8% YoY (year-over-year) to $11.88 billion in the fourth quarter. Notably, the net sales beat analysts’ expectations of $11.83 billion. The company’s fourth-quarter adjusted EPS rose 16.0% YoY to $0.87, which beat analysts’ estimate of $0.83.

T-Mobile reported an adjusted EBITDA of $3.2 billion—a rise of 9.2% YoY mainly due to increased wireless service revenues. On December 31, 2019, the company had a customer base of 86.05 million—8% higher than the previous year. In the fourth quarter, T-Mobile gained 1 million postpaid phone net customers, which was in line with analysts’ expectations. In comparison, AT&T (NYSE:T) gained 229,000 postpaid phone net customers, while Sprint (NYSE:S) lost a net of 115,000 postpaid phone customers.

AT&T generated net revenues of $46.8 billion compared to $48.0 billion in the fourth quarter of 2018—a 2.4% YoY reduction. The company reported a non-core EPS of $0.89 in the fourth quarter compared to $0.86 in the fourth quarter of 2018.

In the quarter ended on December 31, 2019, Sprint continued to report a net loss of $0.08 per share.

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T-Mobile’s outlook for 2020

For fiscal 2020, T-Mobile expects postpaid net customer additions between 2.6 million and 3.6 million. The company also expects its adjusted EBITDA to be $13.7 billion–$14.0 billion. T-Mobile expects to spend $5.5 billion–$5.8 billion on capital expenditures, excluding capitalized interest, this year. For fiscal 2020, T-Mobile expects a free cash flow of $5.4 billion–$5.8 billion. The company expects the cash flow from operating activities to be $7.9 billion–$8.5 billion.

In fiscal 2020, analysts expect T-Mobile’s total revenue to rise 5.4% YoY to $47.4 billion. They expect the company’s adjusted EPS to rise YoY to $4.55 from $4.02.

Merger deal received approved

On Tuesday, U.S. Federal Judge Victor Marrero approved the pending merger deal between T-Mobile and Sprint. The companies won against a group of state attorneys general. The states wanted to stop the merger deal due to antitrust concerns. The merger deal already received approval from the FCC and the Department of Justice.

According to a report from The Verge, “The court concludes that the proposed merger is not reasonably likely to substantially lessen competition in the mobile service market, Marrero wrote, and would likely enhance competition in the relevant markets to the benefit of all consumers.”

The report also said, “T-Mobile and Sprint confirmed that they will be moving to finalize the merger now that it’s received final approval from the court. Incoming T-Mobile CEO Mike Sievert said the deal could close as early as April 1st, 2020.”

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The Department of Justice approved the deal after the new T-Mobile agreed to sell certain wireless assets to Dish Network (NASDAQ:DISH). The combined company also agreed to enter a mobile virtual network operator deal with Dish for seven years. Dish will likely build its own wireless network and compete with other wireless carriers. Read Why Did Dish Network Stock Rise Yesterday? to learn more.

Analysts’ recommendations and target prices

Based on data compiled by Reuters, among the 22 analysts tracking T-Mobile, 82% recommend a “buy,” while 18% recommend a “hold.” None of the analysts recommend a “sell.” On February 7, Suntrust Robinson increased its target price on T-Mobile by $5 to $100. On the same day, Citigroup increased its target price on the stock by $8 to $101, while Cowen increased its target price on the stock by $9 to $105.

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Today, Nomura Instinet analyst Jeffrey Kvaal kept a “buy” rating on T-Mobile stock and increased his target price to $102 from $96. The analyst raised his target price on the stock after the judge approved the proposed merger deal between T-Mobile and Sprint. According to a report from TheFly, “While the analyst expects the state attorneys general to appeal, given the judge’s unqualified opinion, he now ascribes the likelihood of closure to be ~80%. T-Mobile shares have neared a $93 standalone target, and thus may be more attractive for event-driven investors than fundamental investors for now.”

T-Mobile’s 12-month mean target price is $94, which implies a potential downside of 0.5% from its last closing level. Sprint’s mean target price suggests a potential downside of 25.9%, while AT&T’s mean target price suggests a potential upside of 3.3%.

T-Mobile’s stock performance

On Tuesday, T-Mobile rose 11.8% and closed at $94.49. At the closing price, the company’s market cap was $81.0 billion. Currently, the stock is trading 0.8% below its 52-week high of $95.23 and 38.6% above its 52-week low of $68.16. On a YTD (year-to-date) basis, T-Mobile stock has returned more than 20% as of Tuesday.

On Tuesday, T-Mobile stock closed 14.0%, 18.6%, and 18.7% above its 20, 50, and 100-day moving averages of $82.92, $79.64, and $79.60, respectively. The company’s 14-day relative strength index score of 81 indicates that the stock is overbought.

Sprint and AT&T have returned 63.5% and -2.3%, respectively, YTD.

Read T-Mobile versus Sprint: Which Stock Should Investors Buy? and T-Mobile and Sprint Merger Faces Another Hurdle to learn more. You can also read When Will the T-Mobile and Sprint Merger Close? to learn more about the merger.

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