Investors are still trying to wrap their heads around what T-Mobile US Inc. (NASDAQ:TMUS) should be worth in the wake of its failed merger with Sprint Corp. (NYSE:S).
The merger had been one of the market’s big assumptions through 2017, but talks collapsed as Sprint’s primary owner, Masayoshi Son, demanded control of the combination, even though T-Mobile has twice Sprint’s market cap.
After an initial sell-off, the T-Mobile stock price recovered, opening for trade on Nov. 22 at about $60.40 per share, higher than where it stood before the collapse. Investors are divided, either looking at a company too small to compete with bigger rivals or the healthiest pure play in the wireless space.
Where T-Mobile stock goes from here, meanwhile, may all be up to one man, John J. Legere, and whether he’s still up for the market fight.
One-Man Band?
Legere has been CEO of T-Mobile since September 2012. He completely turned around T-Mobile and turned the whole industry upside down with marketing.
Upon becoming CEO, Legere ditched his corporate look for T-shirts under a jacket, he grew his hair out, and he began selling T-Mobile to younger consumers as the “un-carrier,” with contract-free services. Market share began growing almost immediately, and it is now a solid #3 in the U.S. market, with over 72 million customers.
TMUS is still the hippest marketer in the space, with six-second commercials, ads starring Justin Bieber, and Legere’s bad-boy image, which includes 4 million Twitter followers.
Legere has done this without sacrificing profitability. For the quarter ending in September, T-Mobile earned $550 million on revenue of $10 billion. Long-term debt was down to $13.16 billion on assets of almost $68 billion.
Our Vince Martin calls T-Mobile “the best pick in a bad sector,” because its service revenue is growing, it makes a small profit, and it has decent cash flow. But the industry’s bargain prices mean even this best-of-breed stock is only an average performer, when compared with the rest of the market. Most analysts consider it a hold.
His Next Trick?
All mobile carriers are basically internet service providers, and moving bits is subject to Moore’s Law. You must run very fast just to stay in place as the value of bits drops, even as the value of services those bits deliver rises.
Having just spent billions to deliver 4G services, TMUS and its fellow carriers now face the costs of 5G, with 10-100 times the bandwidth. Legere hopes to get there nationwide by 2020, using frequencies T-Mobile bought from broadcasters, through Federal Communications Commission auctions, in 2015.
Beyond that, T-Mobile plans to boost earnings per share by buying back stock, putting its free cash flow to work.
The Bottom Line on T-Mobile Stock
When you buy T-Mobile stock today, you’re buying Legere.
You’re betting that he can keep taking market share and maintain profitability in a slow-growth industry where competitors remain distracted.
His secret weapons are mobile virtual network operators (MVNOs), which are similar in approach to T-Mobile itself, low-cost and focused on urban consumers.
The big threat to T-Mobile is Comcast Corporation (NASDAQ:CMCSA), which has tied together its cable backhaul, customer WiFi, and Verizon MVNO assets into Xfinity Mobile, targeting many of the same markets as T-Mobile.
While AT&T Inc. (NYSE:T) is busy fighting the government, Verizon Communications Inc. (NYSE:VZ) is stuck with bad internet content bets, and Sprint is stuck in fourth place, T-Mobile will fight Comcast, and probably win.
Dana Blankenhorn (http://www.danablankenhorn.com) is a financial and technology journalist. He is the author of the historical mystery romance, The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing, he owned shares in T.
