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T-Mobile Rose Due to Earnings Surprise amid COVID-19

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T-Mobile (NYSE:TMUS) reported its first-quarter earnings results after the markets closed on May 6. Notably, the stock rose about 1.3% in after-hours trading on the same day. Although the revenue missed analysts’ consensus estimate, the earnings beat the estimates.

T-Mobile’s Q1 earnings results

T-Mobile’s adjusted EPS rose 3.8% YoY (year-over-year) to $1.10 in the first quarter, which beat analysts’ estimate of $1.02. In the first quarter, T-Mobile reported revenue of $11.11 billion—0.3% growth from $11.08 billion in the first quarter of 2019. The wireless service provider missed analysts’ consensus revenue expectation of $11.38 billion for the first quarter. T-Mobile’s revenue growth was driven by its service revenue rising 5.3% YoY to $8.7 billion from $8.3 billion. The company’s postpaid revenue rose by 7.2%.

In the first quarter, T-Mobile gained 777,000 net postpaid customers, which includes 452,000 postpaid phone customer net additions. Wall Street analysts expected the company to gain 426,000 postpaid phone net customers in the quarter. However, the company lost 128,000 prepaid net customers. T-Mobile reported a postpaid phone churn rate of 0.86% in the first quarter, which was lower than its churn rate of 0.88% in the first quarter of 2019.

In the first-quarter earnings release, T-Mobile said, “We expect postpaid net customer additions between 0 and 150,000 in Q2 2020. This reflects the ongoing impact of COVID-19 including retail store closures and lower gross adds, partially offset by lower churn.” The company also expects its adjusted EBITDA to be between $6.2 billion and $6.5 billion for the second quarter. T-Mobile expects to spend $2.2 billion–$2.4 billion on capital expenditures excluding capitalized interest. For the second quarter, T-Mobile expects a free cash flow between $1.3 billion–$1.5 billion. The company expects the cash flow from operating activities to be $0.7 billion–$1.0 billion. In the second quarter, merger-related expenses will likely be $500 million–$600 million before taxes.

T-Mobile didn’t provide an outlook for fiscal 2020 due to uncertainty amid COVID-19.

Peer comparison

In the first quarter, AT&T’s (NYSE:T) revenue fell 4.6% YoY to $42.8 billion, which missed analysts’ estimate of $43.9 billion. However, the telecom company’s adjusted EPS fell 2.3% YoY to $0.84, which was in-line with analysts’ forecast of $0.84. In the first quarter, AT&T reported net additions of 163,000 postpaid phone customers. The company reported a postpaid phone churn rate of 0.86% in the first quarter. To learn more, read Investors Might Want to Hold AT&T Stock after Q1 Results.

On a standalone basis, Sprint lost 348,000 postpaid phone net customers in the quarter ended on March 31.

Read T-Mobile’s Q1 Earnings Report Could Boost Its Stock to learn more.

Analysts’ recommendations for T-Mobile

The 12-month average target price is $101.64 for T-Mobile stock, which is at a 17.4% premium to Wednesday’s closing price of $86.59. Among the 26 analysts tracking the stock, 22 recommend a “buy,” while four recommend a “hold.”

After the first-quarter earnings release, Keybanc increased its target price on T-Mobile stock from $99 to $104. However, Cowen and Company decreased its target price on the stock from $114 to $106.

Stock performance

T-Mobile stock fell 2.7% on Wednesday and closed the trading session at $86.59. Notably, the stock was trading 14.6% below its 52-week high of $101.35 and 36.4% above its 52-week low of $63.50. At the closing price on Wednesday, T-Mobile had a market cap of $106.9 billion.

Based on the closing price on Wednesday, T-Mobile stock was trading 2.3% below its 20-day moving average of $88.67. The stock is also trading 0.9% above its 50-day moving average of $85.81 and 2.6% above its 100-day moving average of $84.41. T-Mobile’s 14-day relative strength index score is 48, which indicates that the stock isn’t overbought or oversold.

To learn about the T–Mobile and Sprint merger deal, read T-Mobile and Sprint Merger Gets Green Light in California.

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