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T-Mobile (TMUS) Q3 Earnings Beat on Merger Synergies, View Up

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T-Mobile US, Inc. (TMUS - Free Report) reported solid third-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.

The Bellevue, WA-based company now has more than 100 million wireless customers and America’s largest 5G network. Last quarter, it overtook AT&T (T - Free Report) to become #2 in U.S. wireless.

Net Income

Net income in the September quarter was $1,253 million or $1 per share compared with $870 million or $1.01 per share in the year-ago quarter, as revenue growth outpaced expense increases. About earnings per share (EPS), growth in net income was offset by a higher number of outstanding shares as a result of the Sprint merger.

Adjusted EPS came in at $1.17, beating the Zacks Consensus Estimate by 66 cents, with the earnings surprise being 129.4%.

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


Quarterly total revenues soared 74.2% year over year to $19,272 million, driven by the Sprint merger and customer growth. The top line surpassed the consensus estimate of $18,254 million.

Segment Results

Total Service revenues increased 62.3% year over year to $14,139 million.

In this segment, postpaid revenues were $10,209 million, up 77.7% year over year. The company recorded 1,979,000 postpaid net customer additions and 689,000 postpaid phone net customer additions in the quarter. Postpaid phone average revenue per user (ARPU) increased 5% year over year to $48.55. Prepaid revenues were $2,383 million, almost stable year over year. Prepaid net customer additions were 56,000 in the quarter. Prepaid ARPU inched up 0.9% to $38.49. Wholesale revenues were $930 million, up 189.7% year over year. Roaming and other service revenues were $617 million, up 136.4%.

Equipment revenues totaled $4,953 million, up 126.6% year over year. Other revenues were $180 million, up 11.1%.

Other Details

Total operating expenses increased to $16,707 million from $9,590 million in the year-ago quarter. Operating income improved to $2,565 million from $1,471 million in the prior-year quarter. T-Mobile recorded adjusted EBITDA of $7,129 million compared with $3,396 million in the prior-year quarter. Merger-related costs were $208 million, net of tax, in the third quarter.

Cash Flow & Liquidity

In the first nine months of 2020, T-Mobile generated $5,166 million of net cash from operating activities compared with $5,287 million in the year-ago period. For the same period, free cash flow was $182 million compared with $2,921 million a year ago. As of Sep 30, the company had $6,571 million in cash and cash equivalents with $58,345 million of long-term debt.

2H Outlook Raised

For the second half of 2020, T-Mobile has raised its guidance for profitability and cash flow. The company now expects adjusted EBITDA between $13.6 billion and $13.7 billion, up from prior guidance of $12.4-$12.7 billion. Cash purchases of property and equipment are projected between $6.7 billion and $6.9 billion compared with prior guidance of $6.5-$6.9 billion.

Net cash from operating activities is expected in the range of $5.9 billion to $6.1 billion, up from prior guidance of $5.3-$5.7 billion. Free cash flow, including payments for merger-related costs, is estimated between $700 million and $900 million, up from prior guidance of $300-$500 million.

Looking Ahead

T-Mobile is confident in its ability to deliver $43 billion of synergies and achieve $6 billion of annualized savings from the Sprint merger. It is targeting more than $1.2 billion of synergies in 2020.

The company has America’s largest 5G network, covering 270 million people in 8,300 cities and towns across 1.4 million square miles. This reflects more geographic coverage than Verizon (VZ - Free Report) and AT&T put together. T-Mobile’s mid-band (2.5 GHz) 5G network covers more than 30 million people. It expects to reach 100 million people by the end of 2020.

Zacks Rank & Stocks to Consider

T-Mobile currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the industry is United States Cellular Corporation (USM - Free Report) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

U.S. Cellular delivered a trailing four-quarter positive earnings surprise of 168.1%, on average. The company’s earnings beat the Zacks Consensus Estimate in three of the last four quarters.

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