Entry Price: $145
Target Price: $170
Projected Yield: 17.20%
Time Line: 3 to 6 months
Position Size: 2%
T-Mobile US is a US telecom company offering wireless services; it is the second largest mobile provider in the US by the number of subscribers. The company mainly provides mobile phone and wireless broadband services.
What's the Idea?
The idea lies in capitalizing on the stock that may rise with stable financial performance and the increasing 5G market share.
Buy T-Mobile Shares>>
Why Trade T-Mobile?
Reason 1: Number One in 5G Market
Recently, a few analytic companies have run surveys and tests of 5G networks in the US; the results had T-mobile as the leader in download speed, availability, and coverage among the competition.
The company was able to take the lead with the timely acquisition of Sprint, which had a portfolio of not only 5G infrastructure developments, but also a spectrum with a mid-frequency band (2.50GHz). T-mobile is actively working to integrate Sprint developments into its infrastructure, thereby increasing the market edge. Meanwhile, the acquired mid-frequency band provides higher speed, but also requires more cell sites to provide appropriate coverage. This, in turn, requires more effort and time, but, eventually, the network will provide faster and more reliable coverage, especially when combined with the existing low-bandwidth 5G network.
By acquiring Sprint, T-Mobile got ahead of AT&T and became the second largest wireless provider in the United States. Its 5G network now offers around 33% more coverage than AT&T's and Verizon's 5G networks together.
AT&T and Verizon are also working hard to roll out their own 5G networks, but they are lagging far behind T-Mobile, mainly due to the difficulties associated with acquiring the required frequency spectrum and deploying the infrastructure.
T-Mobile's advantage is backed by customer acquisition data: in Q1 2021, the company was able to add 1.20M subscribers with Postpaid and 773K Postpaid phone customers, being ahead of the competition in both areas.
This advantage should be here to stay in the midterm, which opens up excellent prospects for T-Mobile to expand its market share.
Reason 2: Expansion in Enterprise Market
Enterprise customer market may also provide support to T-mobile, as the former is rapidly growing lately. Currently, T-Mobile has less than 10% of this market, but, with its own 5G network, it can significantly expand its share. New business areas related to IoT products, self-driving vehicles, automated delivery, and VR/AR technologies require high wireless speed and reliable Internet connection, which T-Mobile can provide. All this may well help the company earn more.
Reason 3: Confident Financial Performance
In Q1 2021, T-Mobile's earnings amounted to $19.76B, while the EPS came at $0.74. Both figures exceeded expectations, which were at $18.73B and $0.53, respectively. Compared to Q4 2020, T-Mobile earnings went slightly down, namely by 2.80%; the operating profit margin, however, got up from 8.40% to 10.80%, and the net profit margin, from 3.70% to 4.70%.
The company's debt burden is fine: the amount of debt is $77.80B, with more than a half coming from Sprint acquisition, while the amount of cash is at $6.70B. The debt burden is under control, as the company is working hard to maintain the Net Debt / Adjusted EBITDA Ratio within 3x, while in Q1 2021, it came at 2.60x. In addition, there are no liquidity issues, the free cash flow being stable; in Q1 2021, it reached as much as $1.30B.
Based on Q1 2021 results, the T-Mobile management raised their expectations for key financial and non-financial indicators for 2021, as follows:
- There is a plan to increase the number of people covered by T-Mobile's 5G network from 125M in early March to 200M by late 2021.
- The number of new subscribers (Postpaid) is expected within the range of 4.40M to 4.90M (previously, it was at 4M to 4.70M).
- Adjusted EBITDA is expected to reach $22.80B to 23.20B (previously, $22.60B to $23.10B).
- The FCF is expected to be within $5.10B-$5.50B (previously, $4.90B-5.40B).
When it comes to the ratios, the core ones are as follows:
- EV/S: 3.70x
- EV/EBITDA: 9.40x
- Forward PE: 44.60x
This is more than the major competition has, mostly because the company is expected to grow in the short term and due to the impact by Sprint acquisition.
In May, various investment institutions and banks set the following target prices for T-Mobile:
- Credit Suisse Group: $165
- Raymond James: $146
- Royal Bank of Canada: $133
- Barclays: $150
- UBS Group: $170
- Morgan Stanley: $146
- HSBC: $139
- Benchmark: $187
How to Use the Idea
- Buy the stock at $145.
- Allocate no more than 2% of your portfolio for the transaction. To build a balanced portfolio, you can use the recommendations by our analysts.
- Sell the stock when the price reaches $170.
How to Buy T-Mobile?
If you don't have an investment account yet, open it now: this can be done online, in just 10 minutes. All you need to do is fill out a short form and verify your account.
After opening an account, you can buy shares in either of the following ways:
Freedom24 Web Platform: In the Web Terminal section, type TMUS.US (T-Mobile ticker in the NASDAQ) in the search box, and select T-Mobile in the results. Open a secure session in the trading window on the right, select the number of shares you want to buy, and click Buy.
Freedom24 iPhone or Android App: Go to the Price screen and tab the search icon in the top right corner. In the search dialog that will show up, type TMUS.US (T-Mobile ticker in the NASDAQ) and select T-Mobile in the search results. You will then see the stock in the market watch; tap it and go to the Order tab in the dialog that shows up. Specify the number of shares you want to buy and click Buy.
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*Additional information is available upon request. Investment in securities and other financial instruments always involves risks of capital loss. The Client should make himself aware at his own accord, including to familiarize himself with Risk Disclosure Notice. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Commissions, fees or other charges can diminish financial returns. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and do not constitute an investment advice service. The recipient of this report must make their own independent decisions regarding any securities or financial instruments mentioned herein. Information has been obtained from sources believed to be reliable by Freedom Finance Cyprus Ltd or its affiliates and/or subsidiaries (collectively Freedom Finance). Freedom Finance do not warrant its completeness or accuracy except with respect to any disclosures relative to the Freedom Finance and/or its affiliates and the analyst’s involvement with the issuer that is the subject of the research. All pricing is indicative as of the close of market for the securities discussed, unless otherwise stated.