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Why Is T-Mobile (TMUS) Down 12.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for T-Mobile (TMUS - Free Report) . Shares have lost about 12.5% 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 the most recent earnings report in order to get a better handle on the important catalysts.

T-Mobile Q3 Earnings Top Estimates, Revenues Up Y/Y

T-Mobile reported mixed third-quarter 2021 results, wherein the bottom line surpassed the Zacks Consensus Estimate but the top line missed the same. However, it continues to enjoy solid 5G traction across the United States with accretive customer growth, including higher postpaid net additions and record service revenues. Network integration progress drives higher merger synergies.

Net Income

Net income in the September quarter was $691 million or 55 cents per share compared with $1,253 million or $1 per share in the prior-year quarter. The year-over-year deterioration was primarily due to higher merger-related costs of $707 million. However, the bottom line beat the Zacks Consensus Estimate by a penny, delivering a surprise of 1.9%.

Revenues

Quarterly total revenues inched up 1.8% year over year to $19,624 million, driven by continued customer growth and higher service revenues. However, the top line lagged the consensus estimate of $20,105 million.

Segment Results

Total Service revenues grew 4.1% year over year to $14,722 million. Within it, postpaid revenues were $10,804 million, up 5.8% year over year. The company recorded 1.3 million postpaid net customer additions and 673 thousand postpaid phone net customer additions in the quarter. Postpaid phone average revenue per user (ARPU) declined 1% year over year to $48.06.

Prepaid revenues were $2,481 million, up 4.1% year over year. Prepaid net customer additions were 66K in the quarter. Prepaid ARPU grew 2.6% to $39.49. Wholesale revenues were $944 million, up 1.5% year over year. Other service revenues were $493 million, down 20.1%.

Equipment revenues totaled $4,660 million, down 5.9% year over year. Other revenues were $242 million, up 34.4%.

Other Details

Total operating expenses increased to $18,040 million from $16,707 million in the year-ago quarter. This was mainly due to the higher selling, general & administrative expenses and cost of equipment sales. Operating income decreased to $1,584 million from $2,565 million. T-Mobile recorded an adjusted EBITDA of $6,811 million compared with $7,129 million a year ago. Merger-related costs were $955 million in the reported quarter.

Cash Flow & Liquidity

During the first nine months of 2021, T-Mobile generated $10,917 million of net cash from operating activities compared with $5,166 million in the prior-year period. Free cash flow (excluding gross payments for the settlement of interest rate swaps) was $4,534 million, up from $2,525 million. As of Sep 30, 2021, the company had $4,055 million in cash and cash equivalents with $66,645 million of long-term debt.

2021 Outlook Raised

For the third consecutive quarter, T-Mobile raised the outlook for full-year 2021. It expects postpaid net customer additions between 5.1 million and 5.3 million compared with the prior guidance of 5 million to 5.3 million. Core adjusted EBITDA (adjusted EBITDA less lease revenues) is estimated to be between $23.4 billion and $23.5 billion, up from the prior guidance of $23-$23.3 billion.

The company anticipates cash from operating activities to be between $13.9 billion and $14 billion, an increase from the prior guidance of $13.6 billion to $13.9 billion. Capital expenditures are projected between $12.1 billion and $12.3 billion compared with the prior guidance of $12-$12.3 billion. Free cash flow is estimated between $5.5 billion and $5.6 billion, higher from the prior guidance of $5.2 billion to $5.5 billion. The company continues to make significant progress on integration activities. Nearly 53% of Sprint customers have been moved to the T-Mobile network.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -14.44% due to these changes.

VGM Scores

At this time, T-Mobile has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, 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 A. 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 indicates a downward shift. 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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