T-Mobile (TMUS) stock is beating Verizon, AT&T: still a buy?

T-Mobile (TMUS) stock price went parabolic this week even as many companies in Wall Street dived after earnings. It rose to a record high of $187 on Friday, bringing its year-to-date gains to almost 17%. It has jumped by more than 50% from its lowest point in 2023, beating other telecom companies like Verizon, Comcast, and AT&T.

T-Mobile is firing on all cylinders

T-Mobile, one of the fastest-growing telecom companies in the US, has done well this year, helped by its strong financial results and market share gains. 

Following its merger with Sprint, the company has become the second-biggest telco in the US after Verizon. Customers love it for its better customer service and lower prices compared to their peers. 

TMUS continued its strong performance in the last quarter as its net customer additions rose. Its postpaid account additions rose by over 301,000 in the last quarter, beating other companies in the industry. It now has over 100 million postpaid customers.

T-Mobile has also continued growing its internet customers, adding over 406,000 customers, the best in the industry. 

These numbers translated into strong performance as its service revenue rose by 4% to $16.4 billion. As its postpaid customer additions rose, its segment revenue rose by 7% to over $12.9 billion.

All these numbers were better than what analysts were expecting. Its net income rose by 32% to over $2.9 billion. 

The company hopes to continue growing its business through acquisitions. It recently spent $4.4 billion acquiring UScellular’s wireless operations, a company that provides internet solutions in rural areas.

In its statement, the company also boosted its forward guidance. It expects that its postpaid net additions will be between 5.4 million and 5.7 million this year and that its adjusted EBITDA will be between $31.5 billion and $31.8 billion. 

T-Mobile dividends and share repurchases

T-Mobile is also becoming a good rewarder of shareholders. In the last quarter, it returned $3 billion to shareholders through a combination of dividends and share buybacks. Its buybacks were $2.3 billion, helping it to reduce its outstanding share count to 1.16 billion from December’s 1.19. 

This share count will likely rise slightly since the company will use its stock to fund the USCellular buyout. T-Mobile has a dividend yield of 1.39% and a paltry payout ratio of less than 16%. In contrast, Verizon has a payout ratio of 57% while AT&T has a ratio of 48.26%. 

A payout ratio is an important metric when looking at a company’s dividend safety since it looks at the portion of the cash flow that is used to fund its dividends. A smaller ratio means that a company has more room to boost its payouts in the future.

T-Mobile will also benefit when the Federal Reserve starts cutting interest rates, which could happen as soon as in September. As a highly indebted company, it is spending billions of dollars on interest.

Its interest expense has risen from over $835 million in Q1’23 to over $854 million in the last quarter. It used $1.74 billion in interest in the first six months of the year. 

TMUS valuation concerns

The biggest concern about T-Mobile is its valuation and its substantial debt load. T-Mobile has a forward P/E ratio of 20.32, higher than the sector median of 17.8. In contrast, Verizon has a forward multiple of 9.2 while AT&T has 9.3. 

T-Mobile’s valuation is also in line with that of the S&P 500 index, whose revenue growth is higher. As such, the company will need to continue firing on all cylinders to justify this valuation. 

The other big risk is that T-Mobile is a highly indebted company. It ended the quarter with over $6.47 billion in cash and short-term investments against $72 billion in long-term debt. 

T-Mobile can cover this debt well for now. Its debt load is also lower than that of Verizon, Comcast, and AT&T. However, as we saw with AT&T a few months ago, the company could be forced to cut dividends in the future. 

Analysts have a bullish outlook for the T-Mobile stock price. In separate notes this week, analysts at Benchmark and Barclays maintained their buy and overweight ratings. In 2023, Morgan Stanley boosted its stock outlook to $178.

T-Mobile stock price analysis

The weekly chart shows that the TMUS share price has been in a strong bull run for a long time, helped by its track record of beating analyst estimates and increased hype. Along the way, the stock has formed an ascending channel, which it has retested its upper side. 

T-Mobile shares have remained above the 50-week and 100-week exponential moving averages (EMA) while the Relative Strength Index (RSI) has moved above the overbought level. 

Therefore, the stock will likely continue rising as buyers target the next key resistance point at $200.