T-Mobile (TMUS) Up 0.3% 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 0.3% 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 Beats on Q1 Earnings, Raises 2022 Guidance

T-Mobile reported mixed first-quarter 2022 results, wherein the bottom line beat the Zacks Consensus Estimate, but the top line missed the same.

The company delivered industry-leading growth in postpaid and broadband customers driven by its 5G network and best value combination.

Net Income

Net income in the quarter was $713 million or 57 cents per share compared with $933 million or 74 cents per share in the prior-year quarter. The decline was due to merger-related costs, net of tax of $1.1 billion or 84 cents per share. The bottom line beat the Zacks Consensus Estimate by 16 cents, delivering a surprise of 39%.

Revenues

Quarterly total revenues inched up 1.8% year over year to $20,120 million, primarily driven by growth in service revenues. The top line, however, lagged the consensus estimate of $20,129 million.

Segment Results

Total Service revenues grew 6.6% year over year to $15,128 million, which include Postpaid service revenue growth of 9% driven by customer account and average revenue per account (ARPA) growth. Within it, postpaid revenues were $11,201 million, up 8.7%. T-Mobile recorded 1.3 million postpaid net customer additions and 589 thousand postpaid phone net customer additions in the quarter. Postpaid phone average revenue per user (ARPU) improved 2.3% year over year to $48.41, led by premium services, including Magenta MAX, partly offset by increased promotional activity.

Prepaid revenues were $2,455 million, up 4.4% year over year. Prepaid net customer additions were 62 thousand in the quarter. Prepaid ARPU grew 3.6% to $39.19. Wholesale and other service revenues were $1,472 million, down 4.3% year over year.

Equipment revenues totaled $4,694 million, down 12.2% year over year. Other revenues were $298 million, up 34.8%.

Other Details

Total operating expenses increased to $18,314 million from $17,620 million in the year-ago quarter. Operating income decreased to $1,806 million from $2,139 million. T-Mobile recorded an adjusted EBITDA of $6,950 million compared with $6,905 million a year ago. Merger-related costs were $1,413 million in the quarter.

Cash Flow & Liquidity

During the first quarter, T-Mobile generated $3,845 million of cash from operating activities compared with $3,661 million in the year-ago quarter. Free cash flow was $1,649 million compared with $1,304 million.

As of Mar 31, 2022, the company had $3,245 million in cash and cash equivalents with $66,861 million of long-term debt.

2022 Guidance Raised

T-Mobile has raised the guidance for 2022 across the board. The company now expects postpaid net customer additions between 5.3 million and 5.8 million, an increase from prior guidance of 5 million and 5.5 million. Core adjusted EBITDA (adjusted EBITDA less lease revenues) is estimated to be between $25.8 billion and $26.2 billion, an increase from prior guidance of $25.6 billion and $26.1 billion. It anticipates cash from operating activities between $15.7 billion and $16.1 billion, changed from prior guidance of $15.5 billion and $16.1 billion.

Cash purchases of property and equipment, including capitalized interest, are projected between $13.2 billion and $13.5 billion, changed from prior guidance of $13 billion and $13.5 billion. Free cash flow, including payments for merger-related costs, is estimated in the $7.2 billion to $7.6 billion range, changed from prior guidance of $7.1 billion to $7.6 billion.

T-Mobile is on track to complete the Sprint customer network migration mid-year and decommissioning by the year-end. Its Extended Range 5G covers 315 million people or 95% of Americans. The Ultra Capacity 5G covers 225 million people and nearly 85% of T-Mobile’s customers. About 45% of postpaid customers are currently using a 5G phone, and 5G devices account for more than half of the total network traffic.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

The consensus estimate has shifted 7.97% due to these changes.

VGM Scores

At this time, T-Mobile has a nice Growth Score of B, 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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), a stock from the same industry, has gained 9.8%. The company reported its results for the quarter ended March 2022 more than a month ago.

AT&T reported revenues of $38.11 billion in the last reported quarter, representing a year-over-year change of -13.3%. EPS of $0.77 for the same period compares with $0.86 a year ago.

AT&T is expected to post earnings of $0.63 per share for the current quarter, representing a year-over-year change of -29.2%. Over the last 30 days, the Zacks Consensus Estimate has changed +0.5%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for AT&T. Also, the stock has a VGM Score of A.

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