T-Mobile (TMUS) Up 6.2% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for T-Mobile (TMUS). Shares have added about 6.2% 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 its most recent earnings report in order to get a better handle on the important catalysts.

T-Mobile Q4 Earnings Top Estimates on Record Revenues

T-Mobile reported impressive fourth-quarter 2019 results, wherein the bottom line and the top line surpassed the respective Zacks Consensus Estimate, and increased year over year.

The Bellevue, WA-based company recorded 1.9 million total net customer additions, which mark the 27th consecutive quarter with more than 1 million total net customer additions. T-Mobile delivered all-time high financial results, including service and total revenues, as well as record adjusted EBITDA.

Net Income

The national wireless carrier’s net income for the December quarter was $751 million or 87 cents per share compared with $640 million or 75 cents per share in the year-ago quarter. The improvement was primarily driven by higher operating income. The bottom line surpassed the Zacks Consensus Estimate by 4 cents. For 2019, net income was $3,468 million or $4.02 per share compared with $2,888 million or $3.36 per share in 2018.

Revenues

Quarterly aggregate revenues increased 3.8% year over year to $11,878 million led by growth in service revenues. The momentum, however, was partly offset by a decrease in equipment revenues. The top line surpassed the consensus estimate of $11,816 million. For 2019, revenues increased 3.9% year over year to $44,998 million.

Quarterly Segment Results

Total Service revenues were up 6.3% year over year to $8,708 million, signifying best quarterly performance ever. T-Mobile led the industry for the 23rd consecutive quarter in year-over-year service revenue percentage growth. Within this segment, branded postpaid revenues were $5,821 million, up 8.1% year over year. The company recorded 1.3 million branded postpaid net additions, and 1 million branded postpaid phone net additions in the quarter.

Branded postpaid phone average revenue per user (ARPU) declined to $45.79, down 1.1%. This was mainly due to increased promotional activities, including growth in the company’s Netflix (NASDAQ:NFLX) offering, and a reduction in regulatory program revenues from the adoption of tax inclusive plans.

Branded prepaid revenues were $2,393 million, down 0.3% year over year. Branded prepaid ARPU was essentially flat at $38.54. This indicates the impact of dilution from promotional activity and growth in the company’s Amazon (NASDAQ:AMZN) Prime offering. While wholesale revenues were $341 million, up 12.2%; roaming and other service revenues were $153 million, up 50%. Revenues from Equipment totaled $2,875 million, down 2.2% year over year. Other revenues were $295 million, down 6.6%.

Other Details

T-Mobile recorded adjusted EBITDA of $3,242 million compared with $2,970 million in the prior-year quarter. This was supported by higher service revenues, however, partly offset by increased SG&A expenses and cost of services.

Overall operating expenses increased to $10,644 million from $10,308 million in the year-ago quarter. Operating income improved to $1,234 million from $1,137 million in the prior-year quarter, backed by top-line growth.

Cash Flow & Liquidity

In 2019, T-Mobile generated $6,824 million of net cash from operations compared with $3,899 million in 2018. Free cash flow for the year was $4,319 million compared with $3,552 million in 2018. As of Dec 31, 2019, the company had $1,528 million in cash and equivalents with $10,958 million of long-term debt compared with the respective tallies of $1,203 million and $12,124 million a year ago.

2020 Outlook

On a standalone basis, T-Mobile expects branded postpaid net customer additions between 2.6-3.6 million in 2020. Adjusted EBITDA is anticipated between $13.7 billion and $14 billion, which includes leasing revenues of $450-$550 million and takes into account network expansion, including the deployment of its 600 MHz spectrum and 5G network. Cash purchases of property and equipment, including capitalized interest of about $400 million, are estimated between $5.9 billion and $6.2 billion. Free cash flow, excluding payments for merger-related costs and any settlement of interest rate swaps, is projected between $5.4 billion and $5.8 billion.

Going Forward

T-Mobile continues to invest in building its nationwide 4G LTE network, which now covers 327 million Americans. It also continues to rapidly deploy its 600 MHz spectrum, which now covers 248 million people, and is live in nearly 8,900 cities and towns across 49 states and Puerto Rico.

In December 2019, the company launched America’s first nationwide 5G network, including prepaid 5G with Metro by T-Mobile. This covers more than 200 million people and more than 5,000 cities and towns across the United States with 5G. Further, it introduced two new 600 MHz 5G capable superphones, the OnePlus 7T Pro 5G McLaren and the Samsung (KS:005930) Galaxy Note 10+ 5G and anticipates offering an industry-leading smartphone portfolio built to work on nationwide 5G in 2020. With the New T-Mobile, it will be able to combine this foundational layer of 5G with Sprint’s 2.5 GHz mid-band spectrum.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -6.1% due to these changes.

VGM Scores

Currently, T-Mobile has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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