TMUS with Nobias technology: Down 15% From Its Highs, Is T-Mobile A Buy?
T-Mobile (TMUS) has been making headlines in the communications space for years, with former charismatic CEO, John Legere branding his company, the “Un-Carrier”, setting his company apart from larger rivals, AT&T (T) and Verizon (VZ), which he called things like “Dumb and Dumber” during confrence calls. Legere was boisterous, but he wasn’t all bark and no bite. For years, TMUS shares produced both top and bottom-line growth that AT&T and Verizon investors were quite envious of. This is what led to TMUS outperforming its peers and making major headway as it attempted to catch up (in terms of the mobile carrier market cap race). AT&T and Verizon used to be called a duopoly in the U.S. mobile space. Well, now it’s clear that this is a three-horse race. Today, AT&T’s market cap is $195.6 billion , Verizon’s is $225.1 billion, and T-Mobile’s is $159.8 billion. TMUS shares have experienced a rare sell-off in recent months and at today’s share price of $126.75 they trade at a 15.6% discount to their current 52-week high of $150.20. With recent weakness in mind, we wanted to take a look at what the credible authors tracked by the Nobias algorithm have had to say about TMUS shares recently to see whether or not this is a dip that investors should consider buying.
Looking at TMUS’s share price and the newsflow associated with the company, it appears that the stock’s recent weakness stems from a major data breach and apparent fears that the company may lose its consumer-centric image (which has set it apart in branding from its peers, which often have poor consumer satisfaction scores).
Monica Alleven, a Nobias 4-star rated analyst, covered the data break in an article for Fiercewireless last month. She described the breach saying, “T-Mobile revealed in mid-August that more than 50 million people – including current, former, and prospective customers – had some of their personal data stolen. Customers’ first and last names, date of birth, Social Security numbers and driver’s license/ID information were among the items that were stolen.”
In her piece, she noted that T-Mobile’s EVP and CFO Peter Osvaldik highlighted the sentiment damage that the breach caused; however, he went on to say that the company’s operations are getting back to normal. Alleven quoted Osvaldik, who spoke recently about the breach at a Bank of America securities investment conference, saying, “We definitely saw some temporary customer cautiousness as you would expect, both in terms of gross adds as well as churn immediately following that breach. Now that we’re a couple weeks past it, we’ve seen consumers have moved past it and our flows are beginning to normalize.”
Alleven touched upon the fact that TMUS is famous for highlighting all of the consumers that have switched from the two legacy carriers to its network in recent years; however, she says, “In the second quarter, it was AT&T that posted big wireless subscriber gains, with 789,000 postpaid net phone additions compared with T-Mobile’s 627,000.” The data breach has led investors to fear that this trend could take further hold, allowing a name like AT&T to continue to take market share.
With regard to near-term financial impact of the breach, Alleven doesn’t believe it will be significant. She wrote, “From a financial perspective, there could be ramifications in the long term, such as from regulatory investigations. However, costs associated with immediate actions that T-Mobile took, such as experts that it hired and protection offered to consumers, are not expected to have a material impact in either the third quarter or the second-half results.”
Even though the data breach has sparked a lot of negative headlines, it’s still easy to find credible TMUS bulls. Billy Duberstein, a Nobias 4-star rated analyst recently published an article at The Motley Fool where he highlighted TMUS as a top 5G pick. Duberstein said, “Thanks to its 2020 acquisition of Sprint and other smart spectrum investments over the years, "Un-Carrier" T-Mobile has a solid lead in 5G deployment. In fact, seven recent independent third-party reports clarified that T-Mobile has the superior 5G network -- a big contrast from the 4G era, when it was a laggard.”
With regard to Q2, Duberstein said that “Strong net additions, a beat on revenues and profits, and raised guidance for the year were offset by news that Dish Network (NASDAQ:DISH), will move off T-Mobile's wholesale network for AT&T's (NYSE:T).”
Duberstein did say that the Dish Network decision “will put a near-term hole in T-Mobile's financials, to the tune of over $500 million in revenue per year.” “Yet,” he continued, “despite this small setback, CEO Mike Sievert reiterated the company's impressive medium and long-term guidance outlined in its analyst day back in March”.
Furthermore, Duberstein believes that the company an turn this loss into an opportunity saying, “The loss of Dish will also free up capacity on T-Mobile's network, which the company will turn around and aggressively market to its three main growth targets: enterprises, rural areas, and home 5G broadband. Each of those segments represents a tremendous growth opportunity for the company.”
With regard to the rural broadband, Adam Levy, a Nobias 4-star rated analyst, recently penned a piece which focuses on TMUS’s recent partnership with Wal-Mart which should help the company hit its growth targets in that space. Levy said, “T-Mobile's is heavily focused right now in rural markets. It plans to expand its share [sic] ifrom 13% today to 20% by 2025. And now, it has a new partner to help: Walmart (NYSE:WMT). Starting next month, Walmart shoppers will be able to buy a new phone and activate it on T-Mobile's network at 2,300 of its stores. Walmart's rural presence can help get T-Mobile in front of more customers at a point in time where it has a massive advantage in those markets.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Levy points out that TMUS is already a leader in rural markets saying, “T-Mobile already has a massive lead in 5G coverage in rural markets. It covers 305 million people with its 5G network on the 600 MHz bandwidth. It says that's more than twice the coverage of AT&T and four times that of Verizon.” “But,” he says, “the 600 MHz 5G network doesn't offer the performance promises of 5G, like much faster internet speeds and lower latency.” Therefore, TMUS is investing heavily in the rural space to ensure that it maintains leadership. Levy wrote, “It currently covers 165 million people and expects to cover 200 million Americans by the end of 2021 with what it calls Ultra Capacity 5G and will cover 300 million by 2023. Meanwhile, Verizon's and AT&T's plans call for about 175 million and 150 million people, respectively, covered by mid-band 5G by the end of 2023. The competitors are about two years behind.”
Rural broadband may not be overly exciting to investors; however, Levy says that Jon Freier VP of T-Mobile's Consumer Group, said that this market represents roughly 40% of Americans, or 15 million households holding approximately 140 million people. With that in mind, Levy said that “If T-Mobile grows its share from 13% to 20% of the rural market over the next five years, that's an extra 10 million subscribers, or about 2 million per year. That's pretty substantial, even for a company that's adding around 5 million new customers per year.” This factors into his bullish outlook. As it turns out, Levy isn’t alone in his viewpoint. Actually, that’s a bit of an understatement. Right now, 95% of the credible authors that the Nobias algorithm tracks offer “Bullish” sentiment on TMUS shares.
Right now the average price target for TMUS amongst the credible analysts that we track is $164.67, which represents upside potential of 29.9% relative to today’s share price. In short, it appears that the data breach driven sell-off has created an opportunity here for investors looking to buy TMUS on the dip.
Disclosure: Of the stocks discussed in this article, Nicholas Ward is long T and VZ. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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