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T-Mobile (TMUS) Up 5.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for T-Mobile (TMUS). Shares have added about 5.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is T-Mobile due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

T-Mobile Beats Q2 Earnings on Sprint-Merger Synergies

T-Mobile reported stellar second-quarter 2020 results, with the bottom line beating the Zacks Consensus Estimate. This was the firm’s first quarter as the New T-Mobile, since the closing of its merger with Sprint on Apr 1.

The Bellevue, WA-based company reportedly surpassed AT&T in total branded customers across postpaid and prepaid to become America’s #2 wireless provider. Also, it has become the world’s first operator to launch a nationwide standalone 5G network.

Net Income

Net income in the June-end quarter was $110 million or 9 cents per share compared with $939 million or $1.09 per share in the year-ago quarter. The downside was due to the Sprint merger-related costs, impacts of COVID-19 and non-cash impairments. Adjusted earnings per share came in at 61 cents, which beat the Zacks Consensus Estimate by 50 cents and marked an earnings surprise of 454.6%.

Revenues

Quarterly aggregate revenues soared 61% year over year to $17,671 million, driven by the Sprint merger and customer growth at T-Mobile. The figure excludes almost $1.3 billion of Boost revenues that are reflected in discontinued operations. Nevertheless, the top line lagged the consensus estimate of $17,773 million.

Segment Results

Total Service revenues increased 54.8% year over year to $13,230 million. In this segment, postpaid revenues were $9,959 million, up 77.4% year over year. The company recorded 1,112,000 postpaid net customer additions and 253,000 postpaid phone net customer additions in the quarter. Postpaid phone average revenue per user (ARPU) increased 4.1% year over year to $47.99. Prepaid revenues were $2,311 million, down 2.9% year over year. Prepaid net customer additions were 133,000 in the quarter. Prepaid ARPU inched up 0.9% to $37.80. Wholesale revenues were $408 million, up 30.4% year over year. Roaming and other service revenues were $552 million, up 129%.

Equipment revenues totaled $4,269 million, up 88.6% year over year. Other revenues were $172 million, up 1.2%.

Other Details

Total operating expenses increased to $16,851 million from $9,438 million in the year-ago quarter. Operating income declined to $820 million from $1,541 million in the prior-year quarter. T-Mobile recorded adjusted EBITDA of $7,017 million compared with $3,461 million in the prior-year quarter.

Cash Flow & Liquidity

In the first half of 2020, T-Mobile generated $2,394 million of net cash from operating activities compared with $3,539 million in the year-ago period. In the first six months of 2020, free cash flow was $2,173 million compared with $1,787 million in the prior-year period. As of Jun 30, the company had $11,076 million in cash and cash equivalents with $62,783 million of long-term debt.

Outlook

For the second half of 2020, T-Mobile expects postpaid net customer additions between 1.7 million and 1.9 million. Adjusted EBITDA is estimated between $12.4 billion and $12.7 billion, which includes leasing revenues of $2.4-$2.6 billion. Cash purchases of property and equipment, including capitalized interest, are projected between $6.5 billion and $6.9 billion. Free cash flow, including payments for merger-related costs, is anticipated between $300 million and $500 million.

Going Forward

T-Mobile is confident in its ability to unlock massive synergies and build the world’s best 5G network. It has the country’s largest 5G network, covering more than 250 million people across 1.3 million square miles. It has a mid-band 5G service using 2.5 GHz spectrum live in eight major markets. The list includes Atlanta, Chicago, Dallas, Houston, Los Angeles, New York City, Philadelphia and Washington DC. The company aims to deliver $43 billion of synergies and achieve $6 billion of annualized cost savings from the merger with Sprint.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 284.8% due to these changes.

VGM Scores

At this time, T-Mobile has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, T-Mobile has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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