T-Mobile Delivers Where it Matters Most to Investors

T-Mobile delivers where it matters to investors

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T-Mobile US Inc. (NASDAQ: TMUS) had a rough day after reporting mixed earnings. But the company is up about 3% for the week starting January 30. And TMUS stock participated in the January effect by rising over 9% for the month.

The company reports that its affordable pricing plans help customers stay on time with their payments, even in the face of inflation that remains near all-time highs. This is good for many reasons. Wireless carriers are often evaluated for their ability to add subscribers. And T-Mobile has been doing this for several quarters.

And on the earnings call, T-Mobile Chief Financial Officer Peter Osvaldik said the company could see continued subscriber growth if the economy weakens and customers look for lower-cost plans.

But the company’s revenue still came in at $20.27 billion, slightly below analysts’ expectations of $20.66 billion. This highlights one of the concerns about the wireless business model. To get more customers, you have to offer lower prices, which could lead to lower revenue.

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Fortunately for shareholders of TMUS stock, the company scored a hit on the bottom line. T-Mobile posted earnings per share (EPS) of $1.49. That was just a little less than 50% of the estimate for $1.06.

Sprint to higher profits

How The Wall Street Journal reported, the boost in profits is mainly due to lower costs now that it is digesting its merger with Sprint. Better still, the company expects strong revenue growth over the next five years, even if revenue should grow in the low single digits.

Higher profits are welcome news for investors at any time. But for T-Mobile, investors need to be encouraged as the company strengthens a previous weakness.

The 5G rollout is almost complete

Another encouraging note for investors is that the company’s 5G network now covers about 98% of Americans. In addition, two-thirds of its network traffic is carried over a 5G network.

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That means the company only anticipates capital expenditures between $9.4 billion and $9.7 billion. That’s a far cry from the $14 billion they spent last year.

A buyback is coming

Almost as a footnote to the company’s earnings report, the company announced that it plans $60 million in stock buybacks over the next three years. That’s a massive increase from the $3 billion the company bought back last year and would reduce its outstanding share count by about two-thirds if its parent company Deutsche Telekom AG (OTCMKTS: DTEGY) do not sell in the buybacks.

Is TMUS stock a buy?

When I appeared on MarketBeat’s YouTube channel to discuss TMUS stock, I said it looked overvalued. And purely based on the stock’s P/E ratio, which is currently over 123x earnings, it still is.

But that was without knowing about the buyback program. This adds some shareholder equity in lieu of a dividend, which the stock does not provide. So far two analysts, among them JP Morgan Chase & Co. (NYSE: JPM) have weighed in with higher price targets on the stock market. Both are higher than the current consensus target. Assuming more upgrades are in the offing, it might not be a bad time to invest in TMUS stock.

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