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T-Mobile (TMUS) Up 6.2% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for T-Mobile (TMUS - Free Report) . Shares have added about 6.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is T-Mobile due for a pullback? 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 drivers.

T-Mobile Q2 Earnings Beat, Revenues Miss Estimates

T-Mobile reported healthy financial results in the second quarter of 2018, driven by record-high service revenues and profitability.

Net Income

Net income for the reported quarter came in at $782 million or 92 cents per share compared with $567 million or 67 cents per share in the year-ago quarter. The healthy year-over-year increase was attributable to the positive impacts of the adoption of the new revenue standard and hurricane-related reimbursements. The bottom line beat the Zacks Consensus Estimate by 6 cents.

Revenues

Quarterly total revenues increased 3.5% year over year to $10,571 million, primarily driven by growth in service revenues, partly offset by lower equipment revenues. The top line missed the Zacks Consensus Estimate of $10,636 million.

Segmental Performance

Total Service revenues were up 6.5% year over year for a record high of $7,931 million, which marked the 17th consecutive quarter of leading the industry in a year-over-year service revenue percentage growth.

Within the Service segment, branded postpaid revenues were $5,164 million, increasing 7.1% year over year. Branded postpaid phone average revenue per user (ARPU) was $46.5, down 1.2% from the prior-year quarter, primarily due to the continued adoption of tax inclusive plans, a decrease in the non-cash net benefit from Data Stash, partly offset by the positive impact from T-Mobile ONE rate plans and a net reduction in service promotional activities. Branded prepaid revenues were $2,402 million, up 2.9% year over year. Branded prepaid ARPU was $38.5, down 0.4% from the prior-year quarter, primarily due to promotional activities. Wholesale revenues were $275 million, up 17.5% year over year, while roaming and other service revenues were $90 million, up 57.9%.

Revenues from Equipment totaled $2,325 million, down 7.2% year over year. Other revenues were $315 million, up 20.2%.

Operating Metrics

Quarterly total operating expenses were $9,121 million compared with $8,797 million in the year-ago quarter. Operating income was $1,450 million compared with $1,416 million in the year-ago quarter. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) was $3,233 million, up 7.3% year over year.

Cash Flow & Liquidity

For the first six months of 2018, T-Mobile generated $2,031 million of cash from operations compared with $1,714 million in the year-ago period. Free cash flow for the first half of the year was $1,442 million compared with $667 million in the year-ago period.

As of Jun 30, 2018, the company had $215 million of cash and cash equivalents with long-term debt of $12,065 million.

Outlook

For 2018, T-Mobile increased its expectation of postpaid net customer additions to 3-3.6 million, up from the previous target range of 2.6-3.3 million. Adjusted EBITDA is expected between $11.5 billion and $11.9 billion, up from the previous target range of $11.4-$11.8 billion, which includes leasing revenues of $0.6-$0.7 billion.

Cash purchases of property and equipment, excluding capitalized interest, are expected at the higher end of $4.9 billion and $5.3 billion range, unchanged from the previous guidance. This includes expenditures for 5G deployment.

The three-year (2016-2019) compound annual growth rate guidance for net cash provided by operating activities and free cash flow remains unchanged at 7-12% and 46-48%, respectively.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, T-Mobile has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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 value investors than those looking for growth and momentum.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Interestingly, 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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