T-Mobile stock: More gains expected after 25% rise this year
- T-Mobile stock has more room to maneuver even after its powerful rally this year
- T-Mobile gains market share as rivals AT&T and Verizon face inflationary pressures
- Analysts expect T-Mobile to more than double its profit next year, thanks to synergies from combining Sprint, subscriber growth
T-Mobile (NASDAQ:) has emerged as an unusual winner in this year’s market downturn. The US telecom operator is the best-performing technology stock in the United States, leaving other mega-cap players far behind.
The mobile operator is in a bull zone at a time when technology and communications companies have seen their stock values fall amid rising interest rates and slowing economic growth. The stock gained 26%, far outpacing the performance of broader markets. The NASDAQ 100 is down 25% year-to-date, while the NASDAQ is down 17%. TMUS was trading at $144.36 at the time of writing.
Price history
Source: InvestingPro
Even after this stunning performance, there is good reason to believe that the stock has more room to manoeuvre. In its most recent report, Bellevue, Wash.-based T-Mobile raised its subscriber growth forecast for the second straight quarter.
T-Mobile now expects to add 6 million to 6.3 million new subscribers this year, up from an earlier view of 5.3 million to 5.8 million.
Upbeat forecasts show T-Mobile gaining market share at a time when rivals AT&T Inc (NYSE:) and Verizon (NYSE:) face inflationary pressures and are forced to raise rates on older plans. T-Mobile, on the other hand, has focused on lower prices and attractive promotions, helping the second-largest US mobile carrier post growth without hurting its cash flow.
No dividend burden
Another reason investors are more comfortable owning T-Mobile stock is that the carrier doesn’t pay a dividend, freeing up more cash for growth and gaining share in a tough operating environment. Analysts expect T-Mobile to more than double its profit next year to $6.44 a share on synergies from combining Sprint and growing subscribers.
In an Investing.com poll of 29 analysts, 25 rate T-Mobile a buy with their 12-month consensus price target implying a 16% upside.
Source: Investing.com
In the broader technology, media and telecommunications sector, Credit Suisse analysts rank T-Mobile their top pick for 2022 as they see the carrier gaining more share in rural and enterprise markets. Due to this positive momentum and a potential share buyback plan, Credit Suisse predicts T-Mobile shares could jump another 30% to $188 from Tuesday’s level.
Their note adds:
“Overall, we continue to see T-Mobile stock gains and merger synergy prospects, layered on top of a leveraged stock return strategy soon to kick off ($60 billion in stock buybacks until 2025, which we still plan to start as soon as late 2022) as a compelling opportunity, even with a messy wireless/macro background.”
MoffettNathanson, while downgrading Verizon in a recent note, said he favored T-Mobile, which should benefit from higher margins and momentum to reduce churn and acquire new customers. The company raised its price target for T-Mobile to $174 from $165.
T-Mobile is strengthening its position after its 2020 merger with Sprint, which allowed the new company to serve more customers with high-speed Internet service on the go, putting pressure on AT&T and Verizon to match them as the operators are moving to faster 5G standards.
In addition to this technical lead, T-Mobile was also able to improve its credit rating after the merger. The company was elevated to investment grade by S&P Global Ratings this month, earning an investment grade rating from all three major credit assessors.
The ratings firm “believes that the credit risk associated with integrating Sprint continues to decline” as the company exceeded expectations for integrating with Sprint and increased the amount of money it hopes to save by combining the companies, thereby strengthening its credit profile.
Conclusion
As other telecom carriers face economic pressures, T-Mobile is firing on all cylinders, taking advantage of its merger with Sprint and an improved cash position. If this growth cycle continues, the company may soon announce a share buyback program – a move that could fuel further gains in its stock price.
Disclaimer: The writer does not own shares of T-Mobile.
