T-Mobile US Q2 Revenue Jumps 61%, Overtakes AT&T as Second-Largest Carrier; Target Price $115

T-Mobile US Inc, an American wireless network operator, said its revenue jumped 61% to $17.67 billion in the second quarter, beating Wall Street estimates and added it has overtaken rival AT&T Inc as the second-largest wireless provider in the world’s biggest economy, sending its shares over 5% pre-market trading on Friday.

The telecommunications company headquartered in Washington said it add 1,245,000 new customers in the second quarter of this year, pushing its total customer count to 98.3 million, overtaking AT&T in total branded customers across both postpaid and prepaid.

T-Mobile’s Total revenues increased 61% to $17.7 billion in Q2 2020, driven by the Sprint merger and continued customer growth at T-Mobile. That was higher than strategists’ estimates of $17.61 billion, according to IBES data. The company said its net income declined to $110 million, or 9 cents per share, from $939 million, or $1.09 per share, a year earlier.

“We don’t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued,” said Michael Hodel, director at Morningstar.

On Thursday, T-Mobile US’ shares closed 0.19% higher at $108.10 but gained over 5% in pre-hours trading on the last trading day of the week.

Executive comment

“Surpassing AT&T to become #2 was a huge milestone to kick off Q2, but that was only the beginning! In our first quarter as a combined company, T-Mobile led the industry in total branded customer adds – even in a challenging environment – and there is no doubt that we are THE leading growth company in wireless,” Mike Sievert, T-Mobile CEO said in a press release.

“Now we’re setting our sights on #1 – in customer choice and customers’ hearts – and we’ll get there by doing ONLY what the Un-carrier can do: offering customers the most advanced 5G network AND the best value while continuing to make big moves that fix customer pain points and disrupt this industry. I’m excited about what’s to come in this new T-Mobile era – we’re just getting started!”

T-Mobile US stock forecast

Sixteen analysts forecast the average price in 12 months at $119.50 with a high forecast of $140.00 and a low forecast of $94.82. The average price target represents a 10.55% increase from the last price of $108.10. From those 16, 13 analysts rated ‘Buy’, three analysts rated ‘Hold’ and none rated ‘Sell’, according to Tipranks.

Morgan Stanley target price is $115 with a high of $146 under a bull scenario and $62 under the worst-case scenario. JPMorgan raised the target price to $140 from $110 and Deutsche bank kept target price unchanged at $140 target price, upped the rating to buy from hold.

Several other equity analysts have also updated their stock outlook. T-Mobile U.S. received a $110 price target from analysts at Royal Bank of Canada. The firm presently has a “neutral” rating. KeyCorp boosted their target price to $126 from $104 and gave the company an “overweight” rating. Nomura Instinet boosted their target price on T-Mobile U.S. to $110 from $102 and gave the company a “buy” rating.

We think it is good to buy at the current level and target at least $115 as 100-day Moving Average and 100-200-day MACD Oscillator signal a strong buying opportunity.

Analyst comment

“With the closing of the Sprint merger on April 1, T-Mobile has established itself on relatively equal footing with AT&T and Verizon. Postpaid market share now stands at nearly 30% with the company targeting 2-4% service revenue growth,” Morgan Stanley’s McLeod added.

“The company will be focused on the large integration ahead as it targets $6bn+ in run-rate synergies with the majority coming from decommissioning the legacy Sprint network and moving those subscribers over to a new 5G network. Fixed wireless broadband-enabled by the company’s enhanced mid-band spectrum portfolio could open up an $80 billion + adjacent TAM,” the analyst added.

Upside and Downside risks

1) Better net add and ARPU growth driven by new 5G network 2) Quicker synergy realization 3) Significant growth in fixed wireless broadband, Morgan Stanley highlighted as upside risks to T-Mobile.

1) High churn of Sprint subscriber base. 2) Difficulty in achieving synergy targets and integrating Sprint subscribers. 3) Wireless competition intensifies pressuring ARPUs, were major downside risks.