In light of lackluster subscriber growth from Verizon Communications Inc. (NYSE:VZ) last quarter and a disappointment from Sprint Corp (NYSE:S), things seemingly shouldn’t be stellar for T-Mobile US Inc (NASDAQ:TMUS). The wireless service provider will have a chance to disprove that theory on Monday morning of the coming week — that’s when it’s slated to unveil its third-quarter earnings.
And yet, though it’s struggling just to stay ahead of Sprint in terms of market share and still comes nowhere near Verizon or AT&T Inc. (NYSE:T) on that front, there are clearly some things going for T-Mobile stock that none of its peers can boast.
Indeed, it may be telecom’s best-kept secret.
TMUS Earnings Preview
As of the most recent look, T-Mobile is expected to report third-quarter earnings of 23 cents per share of TMUS stock on revenue of $9.42 billion. Both would be significant improvements on the year-ago figures of 15 cents and $7.85 billion, respectively. The company has topped earnings estimates in six of the past seven quarters.
The expected Q3 growth pace would also be a microcosm of the organic growth the smallish carrier has achieved since the middle of 2013 when it officially became the “uncarrier” and dropped contract-based plans.
The gambit worked, pumping up the top line from $6.2 billion in the second quarter of that year to $9.2 billion for the second quarter of this year. Not every quarter since then has been profitable, though. But, every quarter since Q2 of 2015 has been profitable, and the bottom line is getting bigger in step with revenue.
3 Things to Chew On
Although a mere superficial look suggests that T-Mobile, Sprint, AT&T and Verizon are all the same — just packaged in different colors — a closer inspection reveals nuanced differences that, in many regards, favor T-Mobile stock. If the company can continue to accentuate these three positives, it may well make TMUS the top growth play in this particular arena. In no particular order…
- Winning the subscriber war: Since Q1 of 2014, T-Mobile has added more postpaid subscribers than any other carrier — including giants AT&T and Verizon — each and every quarter. Last year, it added more than 8 million customers to its roster for the second year in a row, topping all carriers. Granted, it has one of the weaker revenue-per-user metrics in the business, so it’s not as if there isn’t a price to pay to garner that market share. It’s worth the cost, however. Analysts expect T-Mobile to report more than 800,000 new subscriber additions for Q3, once again outperforming all other carriers.
- Best network quality: Although for years it was a comparison that only mattered to the carriers themselves (to tout), with wireless service now effectively becoming a commodity, things like the speed and reliability of a carrier’s service are driving consumer decisions. T-Mobile, incredibly enough, outshines its bigger and better-funded rivals there, too. In August of this year, wireless coverage mapping service OpenSignal determined that T-Mobile offered the average fastest download speeds on its 3G and 4G networks. T-Mobile also took a big leap ahead of AT&T in 4G coverage. In light of the strides T-Mobile has made with its 4G network, the fact that it’s the only carrier already asking bigger, philosophical questions about 5G suggests it’s going to hit that nail right on the head.
- Understanding where T-Mobile fits in: Lots of companies talk about their corporate identity, but for most of them it’s just another marketing message that could completely go away and not be a problem. T-Mobile, conversely, has a distinct corporate culture that is one of the key components to its success.
In short, CEO John Legere listens, and he makes it clear what the company is trying to do. Execution is everything.
It’s in sharp contrast to rivals like Verizon, which has been proverbially throwing spaghetti on walls to see what sticks. The impending acquisition of Yahoo is some of that spaghetti. T-Mobile is singularly focused on being a great wireless service provider, though, and the solid results achieved have reflected that focus thus far.
Bottom Line for T-Mobile Stock
If T-Mobile seems like the strongest growth story in the wireless business, that’s because it is. TMUS stock is also the best-performing name among the big four for the past couple of years.
That in itself is encouraging, but also presents a risk.
While T-Mobile stock has benefited at the expense of the other key stocks in this space, as is so often the case, the market may have taken the ball and run too far with it. The stock’s trailing P/E is now a frothy 35.9, and while the company’s growth rate has been impressive, it’s not been that impressive.
The risk posed is simply that TMUS is priced for perfection. Anything less than that and a fragile bubble could be popped, which could send T-Mobile shares lower in a hurry. None of that would change the fact, however, that T-Mobile is becoming the gold standard within the wireless world.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.