T-Mobile US (TMUS) is a fast-growing wireless carrier gaining share in a mature market; the stock looks attractive from most angles, notes Rich Moroney, editor of Dow Theory Forecasts.
The company is generating solid operating momentum. Operating profit margin expanded to a record high in 2023 and increased further in the first half of 2024.
Operating cash flow has climbed by double-digits in five straight years and nine of the past 10 years. It rose 26% in the first half of 2024. Free cash flow has grown at least 25% in each of the past nine quarters.
T-Mobile’s total customer base has more than tripled since 2012, the result of steady organic growth and its $31.8 acquisition of Sprint in 2020. Total customer count rose 5% in the top half of 2024, building on 5% growth in 2023.
In July, T-Mobile said it expects to add 2.7 million to 2.85 million postpaid customers this year, up from its earlier forecast but down from 3.1 million added last year. About 20% of current customers are prepaid, with the rest being postpaid.
Aside from acquiring new customers with Sprint deal, T-Mobile also gained access to spectrum that helped the company expand its 5G wireless network. This network expansion has given T-Mobile a competitive edge over rivals AT&T (T) and Verizon Communications (VZ).
For the September quarter, T-Mobile is expected to report per-share profits of $2.45, up 22%, on revenue growth of 4%. Analyst estimates are trending lower for 2025, though the consensus still expects 16% profit growth on 5% higher sales.
T-Mobile has exceeded the consensus profit estimate by more than $0.10 per share in seven of the past eight quarters. Looking further out, management targets annual growth rates of 7% for operating profit and 5% for service revenue through 2027.
Management takes a balanced approach between its dividend and share repurchases. In September, T-Mobile announced a 35% dividend hike. The company has also repurchased 2% of its shares in the past year and 6.5% over the past three years.
Major shareholders include Deutsche Telekom (DTEGY), holding a 50% stake in T-Mobile, and SoftBank ($30; SFTBY) controlling a 7% stake. Just this past month, Deutsche Telekom said it may increase its stake in T-Mobile into the “high 50%” range.
The stock trades at 26 times trailing earnings, above the median of 21 for the S&P 1500 Index communication-services sector but well below its five-year norm of 38. TMUS also enters earnings season with impressive share-price momentum, rallying 37% so far in 2024.
