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T-Mobile (TMUS) Up 0.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for T-Mobile (TMUS - Free Report) . Shares have added about 0.5% in that time frame, underperforming 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 catalysts.

T-Mobile Q3 Earnings Top on Record Revenues

T-Mobile reported solid third-quarter 2018 results driven by record-high service revenues, along with all-time high total revenues and adjusted EBITDA. Both the top line and the bottom line surpassed the respective Zacks Consensus Estimate in the quarter.

Net Income

Net income for the reported quarter came in at $795 million or 93 cents per share compared with $550 million or 63 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 8 cents.

Revenues

Quarterly total revenues increased 8.2% year over year to a record-high $10,839 million, primarily driven by growth in service revenues and equipment revenues. The top line surpassed the Zacks Consensus Estimate of $10,696 million.

Segmental Performance

Total Service revenues were up 5.7% for a record high of $8,066 million, which marked the 18th consecutive quarter of leading the industry in a year-over-year service revenue percentage growth. Within the Service segment, branded postpaid revenues were $5,244 million, increasing 6.6% year over year. Branded postpaid phone average revenue per user (ARPU) was $46.2, down 1.6% from the prior-year quarter, primarily due to the continued adoption of tax inclusive plans, including the growing success of new customer segments such as TMobile for Business, T-Mobile ONE Unlimited 55+ and T-Mobile ONE Military, as well as reduction in certain non-recurring charges including the noncash net benefit from Data Stash. Branded prepaid revenues were $2,395 million, up 0.8% year over year. Branded prepaid ARPU was $38.3, down 1.5% from the prior-year quarter. Wholesale revenues were $338 million, up 23.4% while Roaming and other service revenues were $89 million, up 50.8%.

Revenues from Equipment totaled $2,391 million, up 12.9% year over year. Other revenues were $382 million, up 40.4%.

Financial Metrics

Quarterly total operating expenses were $9,399 million compared with $8,696 million in the year-ago quarter due to higher cost of equipment sales and higher selling, general and administrative expenses.

Operating income was $1,440 million compared with $1,323 million in the year-ago quarter. Adjusted EBITDA was at record high of $3,239 million, up 14.8% year over year.

Cash Flow and Liquidity

For the first nine months of 2018, T-Mobile generated $2,945 million of cash from operations compared with $2,966 million in the year-ago period. Free cash flow for the first nine months of the year was $2,332 million compared with $1,588 million in the year-ago period. As of Sep 30, 2018, the company had $329 million of cash and cash equivalents with long-term debt of $11,993 million.

2018 Outlook

T-Mobile revised its expectation of branded postpaid net customer additions to 3.8-4.1 million, up from the previous estimation of 3-3.6 million. Adjusted EBITDA is expected between $11.8 billion and $12 billion, up from the previous range of $11.5-$11.9 billion, which includes leasing revenues of $0.6-$0.7 billion. The company now expects leasing revenues at the higher end of the guidance.

Cash purchases of property and equipment, excluding capitalized interest, are expected at the higher end of $4.9-$5.3 billion range, unchanged from the previous guidance. 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.

Moving Ahead

T-Mobile will likely drive its business with solid performances while its pending merger with Sprint await regulatory approval. The company recently announced that it has received shareholder approval related to the merger. This is a step forward in creating the New T-Mobile through which it will bring robust competition to the 5G era. Its customer growth will continue to accelerate, benefiting from the investments in network and in customer experience. We remain impressed with the solid growth potential of the company.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 5.3% due to these changes.

VGM Scores

Currently, T-Mobile has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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