Dj T-Mobile Us Inc, Inst Holders, 3Q 2024 (Tmus)

It has been about a month since the last earnings report for T-Mobile (TMUS). Shares have added about 1.3% 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 drivers.

T-Mobile's Q3 Earnings Beat on Industry Leading Growth, Guidance Up

T-Mobile reported impressive third-quarter 2024 results, with both the bottom and top lines surpassing the respective Zacks Consensus Estimate. The Bellevue, WA-based wireless service provider reported a top-line expansion backed by industry-leading postpaid customer growth.

T-Mobile follows a multi-layer approach to 5G, with dedicated standalone 5G deployed nationwide across 600MHz, 1.9GHz and 2.5GHz bands. Strong growth in free cash flow is a positive.

Net Income

Net income in the third quarter was $3.1 billion or $2.61 per share, up from $2.14 billion or $1.82 per share in the year-ago quarter. The 42.8% year-over-year growth was primarily driven by top-line expansion and lower operating expenses. The bottom line exceeded the Zacks Consensus Estimate of $2.37.

Revenues

Net sales during the quarter were $20.16 billion, up from $19.25 billion in the year-ago quarter, driven by solid growth in service revenues. The top line beat the consensus estimate of $19.86 billion.

Segment Results

Total Service revenues were $16.72 billion, up from $15.9 billion in the year-ago quarter. However, the segment sales marginally missed our revenue estimate of $16.73 billion. The 5.1% year-over-year growth was primarily driven by solid demand for postpaid services. Net sales from Postpaid Services contributed $13.3 million in revenues, up 8% year over year.

During the quarter, T-Mobile added 1.6 million postpaid net customers and 315,000 postpaid net account additions, both being the best in the industry. Postpaid phone net customer additions were 865,000, the best in the industry. The postpaid phone churn rate was 0.86%. High-speed Internet net customer additions were 415,000. Postpaid average revenues per account rose to $145.60 from $139.83 in the year-ago quarter.

Net sales from Prepaid services were $2.71 billion, up from $2.47 billion in the year-earlier quarter. Prepaid net customer additions were 24,000, with a churn rate of 2.78%. Wholesale and other service revenues decreased to $701 million from $1.15 billion in the year-earlier quarter. Prepaid ARPU (average revenues per user) declined to $35.81 from $38.18 in the year-ago quarter.

Equipment revenues were $3.2 billion, up from $3.1 billion in the year-ago quarter. The segment revenues beat our estimate of $2.86 billion. The improvement was primarily attributed to a higher average revenue per device sold, owing to an increase in the high-end phone mix.

Other revenues were $230 million, down from the prior-year quarter’s tally of $262 million.

Other Details

Total operating expenses declined to $15.36 billion from $15.65 billion in the year-ago quarter. Consequently, operating income rose to $4.79 billion from $3.59 billion. T-Mobile recorded core adjusted EBITDA of $8.22 billion compared with $7.54 billion a year ago, backed by solid growth in service revenues.

Cash Flow & Liquidity

In the September quarter, T-Mobile generated $6.13 billion of cash from operating activities compared with $5.29 billion in the prior-year quarter. Adjusted free cash flow was $5.16 billion, up from $4 billion in the year-earlier quarter.

As of Sept. 30, 2024, the company had $9.75 billion in cash and cash equivalents, with $72.52 billion of long-term debt. During the quarter, it repurchased 3.2 million shares for $644 million.

Guidance Up

For 2024, with improved operating metrics, the company presently expects postpaid net customer additions to be between 5.6 million and 5.8 million, up from 5.4 million and 5.7 million expected earlier. Core adjusted EBITDA is estimated to be $31.6-$31.8 billion. It anticipates cash from operating activities within $22-$22.3 billion compared with $21.8-$22.2 billion estimated earlier. TMUS expects adjusted free cash flow in the band of $16.7-$17 billion. Capital expenditure is projected to be in the range of $8.8-$9 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

Currently, T-Mobile has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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