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T-Mobile US
made a winner out of
SoftBank Group
this past week—but the bigger winner is still T-Mobile stock.
T-Mobile’s 2020 acquisition of SoftBank-backed Sprint included a provision that would give the Japanese firm additional compensation if shares of the combined telecom company traded above a certain level for a long enough time. Having hit that agreed-upon threshold, T-Mobile said on Tuesday that it would issue SoftBank an additional 48.8 million shares, worth some $7.6 billion at current prices, while diluting T-Mobile’s existing shareholders by about 4%.
No need to worry. The share issuance won’t handicap T-Mobile stock’s winning streak. The company looks poised to continue gaining market share thanks to the greater scale and network resources provided by the union with Sprint, which will soon enter its fourth year. And the announcement removes an overhang that had some investors worried that the stock would never trade meaningfully above $150. More important, the share issuance is a symptom of T-Mobile stock’s success and pales in comparison to the company’s buyback plans.
About that: By the end of 2024, T-Mobile plans to spend more than $15 billion on repurchasing its shares, plus another $3 billion on dividend payments. That’s around 10% of the company’s market capitalization of some $183 billion, and it should be followed by an even larger buyback authorization for 2025, per management’s long-term guidance.
T-Mobile paid a dividend for the first time in mid-December, and the 65-cent-per-share payout translates to an annual yield of about 1.6%. The heavy lifting will still come from the buybacks, but paying a dividend sends a positive signal and puts T-Mobile closer to rivals
AT&T
and
Verizon Communications.
It shouldn’t be ignored. Nor should the fact that T-Mobile stock has managed a 14% return in 2023 while hitting record highs. Yes, that was well behind the
S&P 500 index’s
27% gain, but it trounced AT&T, which lost 3% after dividends, and Verizon, which returned 2%.
T-Mobile’s outperformance over its peers hasn’t been because of mere hype. It was about the fundamentals—and those should continue to drive the stock higher in 2024. Earnings per share are on pace to be up some 250% in 2023, with analyst consensus calling for another nearly 40% increase in 2024. T-Mobile’s free cash flow is set to rise around 75% in 2023, before analysts’ prediction for 23% growth in 2024.
T-Mobile stock, at a recent $159, has gotten cheaper even as it’s moved higher. Back in January, T-Mobile stock was trading for nearly 22 times expected earnings over the coming 12 months. Today, the stock’s valuation multiple is below 16 times. That’s as the S&P 500’s price/earnings multiple approaches 20 times. T-Mobile is an expensive stock only in the world of telecom, where AT&T and Verizon trade for seven and eight times forward earnings, respectively.
“T-Mobile is demonstrably benefiting from high value customer and corporate recognition of its network leadership as well as a pricing approach emphasizing premium value-added tiering for plans,” Benchmark analyst Matthew Harrigan wrote. He has a Buy rating and a $200 price target—up 26%—on T-Mobile stock.
For now, there’s no topping T-Mobile. The self-described “un-carrier” remains investors’ best bet in telecom for 2024, even after a strong 2023.
Write to Nicholas Jasinski at nicholas.jasinski@barrons.com
Read the full article here
