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T-Mobile (TMUS) Up 7% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for T-Mobile (TMUS - Free Report) . Shares have added about 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's Q2 Earnings Beat on Solid Customer Growth

T-Mobile reported impressive second-quarter 2024 results, with both the bottom and top lines surpassing the Zacks Consensus Estimate. The Bellevue, WA-based wireless service provider reported a top line expansion backed by industry-leading postpaid customer growth. T-Mobile follows a multi-layer approach to 5G with dedicated standalone 5G deployed nationwide across 600MHz, 1.9GHz and 2.5GHz bands.

Net Income

Net income in the second quarter was $2.92 billion or $2.49 per share, up from $2.22 billion or $1.86 per share in the year-ago quarter. The 31.7% year-over-year growth was primarily driven by top-line expansion and lower operating expenses. The bottom line exceeded the Zacks Consensus Estimate of $2.27.

Revenues

Net sales during the quarter were $19.77 billion, up from $19.2 billion in the year-ago quarter, driven by solid growth in service revenues. The top line beat the consensus estimate of $19.51 billion.

Segment Results

Total Service revenues were $16.42 billion, up from $15.73 billion in the year-ago quarter. However, the segment sales missed our revenue estimate of $16.47 billion. The 4% year-over-year growth was primarily driven by solid demand for postpaid services. Net sales from Postpaid Services contributed $12.9 million in revenues, up 7% year over year.

During the quarter, T-Mobile added 1.3 million postpaid net customers, while postpaid net account additions were 301,000, both metrics being the best in the industry. Postpaid phone net customer additions were 777,000, the best in the industry. The postpaid phone churn rate was 0.80%. High-speed Internet net customer additions were 406,000. Postpaid average revenues per account rose to $142.54 from $138.94 in the year-ago quarter.

Net sales from Prepaid services were $2.59 billion, up from $2.44 billion in the year-earlier quarter. Prepaid net customer additions were 179,000, with a churn rate of 2.54%. Wholesale and other service revenues decreased to $938 million from $1.22 billion in the year-earlier quarter. Prepaid ARPU (average revenues per user) declined to $35.94 from $37.98 in the year-ago quarter.

Equipment revenues were $3.1 billion, down from $3.16 billion in the year-ago quarter. The segment revenues beat our estimate of $2.78 billion. The decrease in the total number of devices sold, owing to lower Assurance Wireless, prepaid and postpaid upgrades, adversely impacted the top line in this vertical.

Other revenues were $237 million, down from the prior-year quarter’s tally of $289 million.

Other Details

Total operating expenses declined to $15.14 billion from $15.4 billion in the year-ago quarter. Consequently, operating income rose to $4.63 billion from $3.79 billion. T-Mobile recorded core adjusted EBITDA of $8.02 billion compared with $7.33 billion a year ago, backed by solid growth in service revenues.

Cash Flow & Liquidity

In the June quarter, T-Mobile generated $5.52 billion of cash from operating activities compared with $4.35 billion in the prior-year quarter. Adjusted free cash flow was $4.43 billion, up from $2.87 billion in the year-earlier quarter. 

As of Jun 30, 2024, the company had $6.41 billion in cash and cash equivalents, with $70.2 billion of long-term debt. During the quarter, it repurchased 14 million shares for $2.3 billion.

Guidance Up

For 2024, with improved operating metrics, the company presently expects postpaid net customer additions to be between 5.4 million and 5.7 million, up from 5.2 million and 5.6 million expected earlier. Core adjusted EBITDA is estimated to be $31.5-$31.8 billion. It anticipates cash from operating activities within $21.8-$22.2 billion. TMUS expects adjusted free cash flow in the band of $16.6-17 billion, up from the $16.4-$16.9 billion estimated earlier. Capital expenditure is projected to be in the range of $8.7-$9.1 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, T-Mobile has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, 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 B. 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 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.

Performance of an Industry Player

T-Mobile is part of the Zacks Wireless National industry. Over the past month, AT&T (T - Free Report) , a stock from the same industry, has gained 1.5%. The company reported its results for the quarter ended June 2024 more than a month ago.

AT&T reported revenues of $29.8 billion in the last reported quarter, representing a year-over-year change of -0.4%. EPS of $0.57 for the same period compares with $0.63 a year ago.

For the current quarter, AT&T is expected to post earnings of $0.59 per share, indicating a change of -7.8% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for AT&T. Also, the stock has a VGM Score of C.


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