TMUS - T-Mobile: Solid 1Q24 Results But The Market Is Too Optimistic

2024-05-09 14:39:14 ET

Summary

• T-Mobile's 1Q24 earnings results were robust, aligning closely with the management's guidance presented in 4Q23.
• However, shrinking postpaid phone net adds "pool" and competition from Cable have put pressure on MNOs.
• FWA has managed to drive top-line growth, but its growth is starting to slow down. Cable's network upgrades will enable them to offer symmetrical speeds and have better marketing claims.
• T-Mobile witnessed continued margin expansion, driven by merger synergies, reduced headcount, and operational efficiency. However, questions remain whether the company can keep this trend up.
• The stock is trading at 17x forward earnings, a significant premium over competitors. The market is anticipating over 20% EPS growth, which we think is overly optimistic.

Recap

In our November 2022 article about T-Mobile ( TMUS ), we wrote that the company will succeed in reaching its target of 7-8 million Fixed Wireless Access ("FWA") by 2025. Additionally, T-Mobile's dominance in postpaid phone net adds is partially attributed to its significant mid-band spectrum holdings, while competitors Verizon (NYSE: VZ ) and AT&T (NYSE: T ) are slower in deploying mid-band spectrum. Despite this, we think the stock was trading within its fair value.

Since then, shares have risen by 7%, primarily driven by management's announcement of a $19 billion shareholder return program in the form of dividends and share repurchases, with a 10% annual dividend growth target ....

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