Why Is T-Mobile (TMUS) Down 4.5% Since Last Earnings Report?

A month has gone by since the last earnings report for T-Mobile (TMUS). Shares have lost about 4.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is T-Mobile due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

T-Mobile Q4 Earnings, Revenues Top on Merger Synergies

T-Mobile reported solid fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.

The wireless carrier recorded industry-leading total net additions, postpaid net additions and postpaid phone net additions.

Net Income

Net income in the December quarter was $750 million or 60 cents per share compared with $751 million or 87 cents per share in the year-ago quarter. The performance reflects an increase in expenses owing to the Sprint merger, including merger-related costs, which were partly offset by higher revenues. Earnings per share (EPS) decreased due to lower net income and a higher number of outstanding shares as a result of the merger.

In 2020, net income was $2,744 million or $2.37 per share compared with $3,468 million or $4.02 per share in 2019.

Quarterly adjusted EPS came in at $1.03, beating the Zacks Consensus Estimate by 52 cents, with the earnings surprise being 102%.

Revenues

Quarterly total revenues soared 71.2% year over year to $20,341 million, driven by the Sprint merger and customer growth. The top line surpassed the consensus estimate of $19,966 million. In 2020, revenues increased 52% year over year to $68,397 million.

Quarterly Segment Results

Total Service revenues grew 60.2% year over year to $14,180 million. Under this, postpaid revenues were $10,251 million, up 76.1% year over year. The company recorded 1.6 million postpaid net customer additions and 824,000 postpaid phone net customer additions in the quarter. Postpaid phone average revenue per user (ARPU) increased 4.5% year over year to $47.86. Prepaid revenues were $2,354 million, down 1.6% year over year. Prepaid net customer additions were 84,000 in the quarter. Prepaid ARPU slipped 1.2% to $38.08. Wholesale revenues were $927 million, up 171.8% year over year. Roaming and other service revenues were $648 million, up 119.7%.

Equipment revenues totaled $5,973 million, up 107.8% year over year. Other revenues were $188 million, up 22.9%.

Other Details

Total operating expenses increased to $18,629 million from $10,644 million in the year-ago quarter. Operating income improved to $1,712 million from $1,234 million in the prior-year quarter. T-Mobile recorded adjusted EBITDA of $6,746 million compared with $3,242 million in the prior-year quarter. Merger-related costs (before taxes) were $686 million in the fourth quarter.

Cash Flow & Liquidity

In 2020, T-Mobile generated $8,640 million of net cash from operating activities compared with $6,824 million in 2019. Free cash flow was $658 million compared with $4,319 million.

As of Dec 31, 2020, the company had $10,385 million in cash and cash equivalents with $61,830 million of long-term debt. This compares with the respective tallies of $1,528 million and $10,958 million a year ago.

2021 Outlook

For 2021, T-Mobile expects adjusted EBITDA between $26.5 billion and $27 billion. Cash purchases of property and equipment are projected between $11.7 billion and $12 billion. Net cash from operating activities is expected in the range of $13 billion to $13.5 billion. Free cash flow, including payments for merger-related costs, is estimated between $4.9 billion and $5.4 billion.

Looking Ahead

T-Mobile is confident in its ability to deliver the Sprint merger synergies and achieve annualized savings. The company’s Extended Range 5G covers 280 million people across 1.6 million square miles. It offers almost 4 times more coverage than Verizon and 2.5 times more than AT&T.

T-Mobile’s Ultra Capacity 5G covers 106 million people, which is 50 times more than Verizon’s 5G Ultra Wideband. It expects to reach 200 million people nationwide by the end of 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, T-Mobile has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions looks promising. Notably, T-Mobile has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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