With the of T-Mobile (NASDAQ: TMUS) lost 15% in the last 12 months, the market presents investors with a point of entry. That's because there are a number of catalysts that could help the wireless telephone company recover to new highs in the next year. Specifically, here are three reasons why you may want to consider buying T-Mobile shares today.
1. Industry-leading customer growth
The first quarter of 2018 marked the twentieth consecutive quarter T-Mobile added more than 1 million net customers, and its seventeenth consecutive quarter of industry-leading growth.
The company continues to interrupt the huge US wireless industry UU., With unconventional movements such as offering only unlimited plans and eliminating contracts and surplus charges. Innovative promotions, such as the inclusion of free subscriptions from Netflix with their family plans, further fueled their growth.
These "Un-Carrier" tactics helped T-Mobile overtake Sprint (NYSE: S) to become the third-largest wireless operator in the US. UU Now, the hard-charging company has set its sights on bridging the gap between him and the industry titans Verizon and AT & T .
To do so, T-Mobile is aggressively investing in its wireless network. It bought $ 8 billion of low band spectrum to strengthen and expand its LTE network in order to "compete in all corners of the country."
These investments are driving coverage and download speeds, as noted by CEO John Legere during the company's fourth quarter earnings call:
OpenSignal, the global standard for measuring the mobile network experience Real consumers, called T-Mobile as the winner in 5, count them, 5 categories in their recent report. Nearly 6 billion tests of real customers from each major wireless network show that the T-Mobile network is the fastest in the industry, and that T-Mobile customers receive an LTE signal more often than AT & T, Sprint and even Verizon.
Between its Un-Carrier strategy and its possibly best-in-clbad network, T-Mobile is giving consumers a strong incentive to change, and they are doing so. The operator expects to add 2.6 million to 3.3 million new net customers in the next year.
The growth of subscribers of T-Mobile industry. Image source: Getty Images.
2. Increasing cash flow
These robust subscriber earnings are helping to increase revenue and profits for T-Mobile. Revenues increased 8.8% year-on-year to $ 10.5 billion in the first quarter, while adjusted EBITDA increased 10.8% to $ 3 billion.
Better yet, that rapidly expanding customer base is driving the abundant production of cash flow. The company expects to generate an annual free cash flow of $ 4.5 billion to $ 4.6 billion by 2019, which would represent a 3-year compound annual growth rate of 46% to 48% from 2016 to 2019.
allows T-Mobile to invest in growth while returning cash to investors through share buybacks, which should amplify EPS's earnings and boost its share price higher.
3. A pending merger with Sprint
As can be seen, T-Mobile is doing well on its own. However, management is looking to accelerate its progress to be comparable in size with the leaders of the US wireless industry. UU When merging with Sprint.
Sprint and T-Mobile have tried to join on two previous occasions, but concerns that the regulators' offers failed them. However, under President Trump, who is widely seen as less concerned about antitrust and anti-trust issues, this time an agreement can be reached.
The proposed merger agreement values the combined company at around $ 146 billion, compared to the approximately $ 200 billion securities currently placed on each of its two largest rivals. According to Strategy Analytics, the formidable new company would have approximately 126 million customers, compared to 150 million for Verizon and 142 million for AT & T.
At that scale, a combined T-Mobile / Sprint could generate much higher profits . the margins that either company could alone, driven in part by a synergy of annual costs estimated at $ 6 billion. And T-Mobile would eliminate an opponent that has historically been aggressive in terms of discount. Therefore, the combined company could probably offer fewer promotions, which could further boost margins.
In addition, the merged entity could make better use of Sprint's valuable spectrum holdings, since its more robust cash flow would allow it to deploy these badets faster. In addition, it has a larger network of retail stores, which T-Mobile has identified as an important growth engine.
Perhaps the most interesting thing is that the two companies say that if they are allowed to merge, they could "build the first wide and deep 5G network nationwide". That would increase their ability to benefit from the explosive growth of the Internet of Things and further strengthen their competitive position.
Despite the change of administration in Washington, it is still not clear whether the regulators will sign the merger, so this potential benefits may not materialize. However, even without that agreement, it is likely that T-Mobile will continue to increase the number of subscribers and free cash flow at industry-leading rates. And with its stock market operations only around 10 times its free cash flow scheduled for 2019, T-Mobile shares are a real bargain. Long-term investors may want to consider buying some T-Mobile shares today.