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Bull Of The Day: T-Mobile (TMUS)

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T-Mobile (TMUS - Free Report) is a primary driver of the 5G revolution, and its growth-oriented strategy makes it the most attractive stock in the mobile provider space. This enterprise is the only wireless carrier that can boast of 12 straight quarters of top and bottom-line expansion (on a year-over-year basis). The global pandemic doesn't appear to be dampening its (growth) spirits as the company comes out of Q1 virtually unscathed.

Analysts continue to raise their EPS guidance for TMUS over the next few years along with their price targets, pushing this stock into a Zacks Rank #1 (Strong Buy).

The Merger

The merger between T-Mobile and Sprint was finalized on April 1st, making the combined company a telecom powerhouse with a secure grip on the number 3 spot amongst telecom behemoths.

According to a T-Mobile press release regarding the merge, "the enhanced scale and financial strength of the combined company will drive a planned investment of $40 billion into its network, business and more over the next three years. Synergies achieved from the integration have the potential to unlock massive scale and unleash at least $43 billion in value for shareholders."

User Growth

In Q1, T-Mobile grew its customer base by 649,000, illustrating the strongest growth in the industry. This builds on the 1.4 million new customers in Q4 and 1.1 million in Q3 of last year.

I expect this best-in-class expansion rate to continue as it grows out its 5G network and capitalizes on the new combined enterprise's synergies. T-Mobile's budget offering is becoming increasingly attractive for millennials and Gen Zs, who are finally getting off their parents' phone plans.

The younger gen alignment of the business is going to drive this company and its stock to the stratosphere.

The Valuation & Opportunity

T-Mobile's fair value is difficult to establish before Sprint is fully integrated into the business. The stock's valuation has been a bit stretch amid this pandemic due to the enterprise's immunity to the economic downturn and the merger being finalized.

I think that TMUS's seemingly frothy valuation is justified, but I'm not sure how much further it can be stretched. Q2 earnings are going to be crucial for the stock's continued expansion.

I remain confident in T-Mobile's long-term potential, despite its somewhat frothy valuation. As a long-term investor, I wouldn't hesitate to pull the trigger on some of these shares with a plan to average down if we were to see a correction. As a short-term trader/investor, I may wait for these shares to correct towards their 50-day moving average, just south of $100 per share.

TMobile US, Inc. Price, Consensus and EPS Surprise

TMobile US, Inc. Price, Consensus and EPS Surprise

TMobile US, Inc. price-consensus-eps-surprise-chart | TMobile US, Inc. Quote

TMUS does not offer a dividend, but its growth potential should more than satisfy investors' return requirements. TMUS has already rallied 35% so far this year, far outperforming its cohorts and the broader market as investors price in the budding synergies between these two telecom giants.

I expect these shares to experience volatility in the short-term, but if it can deliver on its $43+ billion in synergy proposition, I think TMUS has an enormous amount of growth ahead.

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