T-Mobile stock continues to outperform its wireless peers this year, rising by about 7% year-to-date, compared to Verizon, which has remained roughly flat, and AT&T
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which has gained about 6% over the same period. The stock’s strong showing is supported by T-Mobile’s continued growth in the lucrative postpaid phone market (927,000 subscriber adds over Q4 2022, more than both Verizon and AT&T combined). T-Mobile has also made steady inroads into the broadband market with its fixed wireless broadband offering which added an industry-leading two million subscribers last year. The product is gaining popularity following the rollout of 5G as it offers customers relatively affordable and speedy connections that they can install on their own. T-Mobile has also done some M&A this year, acquiring Ka’ena Corporation, a company that owns budget wireless mobile virtual network operators Mint Mobile and Ultra Mobile. The deal is likely to enable the company to bring in more budget-conscious customers via online channels. Moreover, since both carriers operate on top of the T-Mobile network, there could be some cost savings as well.
Now, following the continued rally this year, T-Mobile’s valuation appears a bit high versus its peers. The stock trades at about 22x forward earnings, which is well ahead of rivals AT&T and Verizon, which both trade at under 9x forward earnings. T-Mobile has also indicated that it expects its subscriber growth is poised to cool over 2023, guiding overall postpaid net customer additions of between 5 million and 5.5 million for the year, after adding 6.4 million customers in 2022. However, we think the premium valuation is more than justified by T-Mobile’s earnings growth potential, driven by synergies from the acquisition of Sprint
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. T-Mobile decommissioned Sprint’s legacy network in late 2022 and expects to see a 75% jump in cash flows for this year due to cost savings. Consensus estimates indicate that earnings per share will rise by 3x in 2023 and by close to 40% over 2024. We value T-Mobile at about $161 per share, which is about 7% ahead of the current market price. See our analysis on T-Mobile valuation: Expensive or Cheap for more details on what’s driving our price estimate for the company. Also, check out our analysis of T-Mobile revenue for more details on the company’s key business segments and how revenues are likely to trend.
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