It has been about a month since the last earnings report for T-Mobile US, Inc. (TMUS - Free Report) . Shares have added about 4.0% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is TMUS due for a pullback? 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 drivers.
T-Mobile US Tops Q4 Earnings Estimates, Lags Revenues
T-Mobile US reported mixed financial numbers for the fourth quarter of 2017. The bottom line beat the Zacks Consensus Estimate, while the top line lagged the same.
GAAP net income in the reported quarter was $2,707 million compared with net income of $390 million in the year-ago quarter. Quarterly earnings per share of 48 cents surpassed the Zacks Consensus Estimate of 37 cents.
Total revenues increased 5.1% year over year to $10,759 million in the reported quarter. The figure missed the Zacks Consensus Estimate of $10,886 million. Segment-wise, Service revenues were up 7.1% year over year to $7,757 million. Sales from Equipment totaled $2,708 million, down 1.2% year over year. Other revenues were $294 million, up 18.1% year over year.
Within the Service segment, branded postpaid revenues were $4,983 million, increasing 6.5% year over year. Branded prepaid revenues were $2,371 million, up 6.5%. Wholesale revenues were $324 million, up 25.6%. Roaming & other services revenues were $79 million, down 1.3%.
Quarterly operating income was $1,112 million compared with $1,001 million in the year-ago quarter. Adjusted EBITDA was $2,711 million, up 4% year over year. Adjusted EBITDA margin was 35% compared with 36% in the year-ago quarter.
Cash Flow & Liquidity
In the fourth quarter of 2017, T-Mobile US generated $2,058 million of cash from operations compared with $1,602 million in the prior-year quarter. Free cash flow in the reported quarter was $1,137 million compared with $743 million in the year-ago quarter.
As of Dec 31, 2017, T-Mobile US had $1,219 million of cash and cash equivalents and $12,121 million of debt outstanding compared with $5,500 million and $21,832 million, respectively, at the end of 2016.
Subscriber Statistics and Other Metrics
As of Dec 31, 2017, total customer base of T-Mobile US was 72.585 million, up 1.6% year over year. Branded postpaid phone customers totaled 34.114 million, up 9%. Branded postpaid other customer count was 3.933 million, surging 25.7%. Branded prepaid customer count was 20.668 million, up 4.4%. Wholesale customers were 13.870 million, declining 19.4%.
In the reported quarter, T-Mobile US added net 0.891 million branded postpaid phone customers, 0.181 million branded postpaid other customers, 0.149 million branded prepaid customers and 0.633 million wholesale customers. Total net customer addition was 1.854 million, marking the 19th successive quarter of over 1 million net customer additions. Quarterly branded postpaid phone churn was 1.18% compared with 1.28% in the year-ago quarter. Branded prepaid churn was 4.00% compared with 3.94% in the year-ago quarter.
Quarterly branded postpaid phone average revenue per user (ARPU) was $46.38 compared with $48.37 in the prior-year quarter. Branded prepaid ARPU was $38.63 compared with $38.20 in the prior-year quarter. Branded postpaid average billing per user (ABPU) was $59.88 compared with $63.08 in the year-ago quarter.
Outlook for 2018
For 2018, T-Mobile US projects postpaid net customer additions between 2.0 million and 3.0 million.
Adjusted EBITDA is expected between $11.3 billion and $11.7 billion, which includes leasing revenues of $0.6-$0.7 billion. Including the estimated impact of the new revenue standard, adjusted EBITDA is likely to increase by an additional $0.2-$0.5 billion.
Cash purchases of property and equipment, excluding capitalized interest, are expected between $4.9 billion and $5.3 billion. This includes expenditures for 5G deployment.
The three-year (2016-2019) compound annual growth rate (CAGR) guidance for net cash provided by operating activities is in the range of 16-18%, up from the previous range of 15-18%. The three-year CAGR for free cash flow is expected in the range of 46-48%, up from the previous range of 45-48%. The estimates were raised after considering the impacts of the approved $1.5-billion stock repurchase program.
Notably, T-Mobile US expects branded postpaid phone ARPU for 2018 to be stable compared with that of 2017, per current revenue accounting standards.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter compared to two lower. In the past month, the consensus estimate has shifted by 16.8% due to these changes.
At this time, TMUS has a nice Growth Score of B, however its Momentum is doing a bit better with an A. The stock was allocated a grade of B on the value side, putting it in the second quintile 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.
Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.
Estimates have been broadly trending upward for the stock and the magnitude of these revisions looks promising. Notably, TMUS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.