Shares of T-Mobile (TMUS) are back on the ascent, thanks in part to the broader market rebound and incredibly strong quarterly earnings results. Undoubtedly, T-Mobile’s 5G coverage has improved by leaps and bounds over the years. Combined with exceptional customer service, T-Mobile seems poised to continue taking share from its peers, even as recession looms. I am bullish on TMUS stock.
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T-Mobile is Back to Taking Meaningful Share from Telecom Rivals
T-Mobile hit a bump in the road in recent quarters as a result of intensifying competition. However, after a strong second quarter, it’s become more apparent that T-Mobile is back to taking share in the telecom scene.
The company saw postpaid phone subscribers soar to 723,000, beating estimates calling for 575,000. T-Mobile is making significant strides over telecom titan Verizon (VZ), which seems most vulnerable to T-Mobile’s aggressive expansion. Verizon posted a measly 12,000 in postpaid gains for its latest quarter.
After spinning off its media business, AT&T (T) is a lean and mean competitor in the American wireless scene. AT&T bested T-Mobile with a whopping 813,000 subscribers in its latest quarter. As T-Mobile continues executing, count me as unsurprised if T-Mobile can snap AT&T’s five-quarter streak of reporting the best wireless growth numbers.
T-Mobile’s growth in revenue per postpaid phone customer jumped 3%. Looking ahead, the management team expects the metric to grow by 2% for the year. I think that’s a low bar to pass, setting up the stage for another quarterly surprise at some point down the road. In any case, I do think management is wise to err on the side of caution with a potential recession on the horizon.
The new AT&T looks like a force to be reckoned with, and with T-Mobile also getting its groove back, it’s Verizon that could find itself on the receiving end as its wireless business hits a wall.
T-Mobile’s Lack of a Dividend Could Prove Advantageous
Undoubtedly, many income investors have flocked to T-Mobile’s telecom peers for their impressive yields. With no hefty dividend commitment, T-Mobile can focus all of its efforts on creating the very best network. With the Sprint integration in full swing, T-Mobile needs to make the right investments to keep its customers happy. It can’t afford to cheap out on costly integration expenditures.
At the end of the day, satisfied customers are less likely to switch, even with industry switching on the floor. Ever-improving promotions offered up by competitors are also something to watch for. T-Mobile and the rest of the industry have been quite generous in offering free video-streaming services to beckon customers.
Over the long haul, though, it’s network quality and coverage that will dictate where customers flow. In that regard, it’s tough to top T-Mobile, as it continues to push 5G wireless services into less-covered areas of the country.
Indeed, T-Mobile’s lack of a dividend makes it unique. With exceptional stewards running the show, I’d argue that such an unpopular move could free up financial flexibility. Indeed, T-Mobile boasts a strong balance sheet with $3.15 billion in cash and cash equivalents as of June 2022, which would allow for more remarkable growth and total returns over time.
Wall Street’s Take on TMUS
Turning to Wall Street, T-Mobile has a Strong Buy consensus rating based on 15 Buys assigned in the past three months. The average TMUS price target of $176.60 implies 22.8% upside potential. Analyst price targets range from a low of $159.00 per share to a high of $205.00 per share.
Takeaway – T-Mobile Isn’t Cheap, but It Doesn’t Deserve to Be
T-Mobile is back to its disruptive ways. The Sprint acquisition seems to be going smoothly and could provide the firm with yet another edge over its Big Three rivals in AT&T and Verizon. At more than 61.8 times forward earnings, TMUS stock isn’t cheap, but it doesn’t deserve to be cheap, given its standout performance relative to its dividend-paying peers.
