After 15 months of lobbying and negotiations, T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S) are finally on the verge of closing their proposed merger. Back in May, the FCC approved the merger after the two companies agreed to certain concessions, mostly revolving around Sprint divesting its prepaid phone business. Those same concessions won over DoJ approval in late July.
Although one legal hurdle remains (a lawsuit from over a dozen attorneys general who remain concerned about wireless industry consolidation), it seems very likely that T-Mobile and Sprint will finally merge under the T-Mobile umbrella. The Sprint name will be retired.
This merger has huge implications for wireless industry stocks. It immediately thrusts T-Mobile into the “Big 3” conversation in the wireless industry. Both Verizon (NYSE:VZ) and AT&T (NYSE:T) have around 100 million customers. T-Mobile will now have 90 million customers, rivaling Verizon and AT&T in size for the first time ever.
It also essentially turns the wireless industry into a three-horse race. While Sprint is selling its prepaid phone business to Dish (NASDAQ:DISH), that business isn’t terribly large. AT&T, Verizon, and T-Mobile will control 95% of American phone plans.
Even further, it is happening ahead of what promises to be the biggest catalyst this industry has seen in several years — the mainstream and widespread roll-out of 5G coverage.
Big change is coming to the wireless industry over the next few years. That change will be positive for some stocks and negative for other stocks. As such, investors should pay especially close attention to these five 5G stocks, especially on the heels of the T-Mobile/Sprint merger winning DoJ approval.
5G Stocks to Watch: Sprint (S)First on this list of 5G stocks to watch after the T-Mobile/Sprint merger won approval is — unsurprisingly — Sprint.
The reason you watch Sprint stock is because the T-Mobile/Sprint merger saga isn’t over. The final chapter has yet to be written. There is still one not-so-insignificant legal hurdle here that the proposed merger has to pass: A lawsuit from over a dozen state AGs that claim the prepaid phone business concessions from Sprint are insufficient to address anti-competitive concerns.
It is unlikely that this lawsuit stops the merger from going through. Historically speaking, the two big blockers in the U.S. to M&A are failure to win either DoJ or FCC approval. I cannot think of a case in recent memory where a proposed merger won FCC and DoJ approval, but failed to get closed due to a state AGs lawsuit. That’s exactly where the T-Mobile/Sprint merger finds itself today. As such, it is increasingly likely that the merger does close over the coming weeks.
In the event that it does, Sprint stock will run higher. The deal between T-Mobile and Sprint is structured in a way that, upon closing, each share of Sprint equals 0.10256 each share of T-Mobile. Under those terms, if the deal closed today, Sprint stock would be taken out at roughly $8.40.
Sprint stock trades under $8 today. Thus, this is a 5G stock worth watching because — pending legal developments over the next few weeks — it could run substantially higher.
T-Mobile (TMUS)Second on this list of 5G stocks to watch after the T-Mobile/Sprint merger won approval is — also unsurprisingly — T-Mobile.
The reason you want to keep a close eye on TMUS stock is two-fold. First, as mentioned earlier, the T-Mobile/Sprint merger isn’t a done deal, and legal developments over the next few weeks will influence TMUS stock price either higher or lower, depending on the outcome of those legal proceedings.
Second, assuming the legal proceedings develop as expected and the deal closes within the next month, T-Mobile’s long-term growth prospects are dramatically altered. This company goes from David to Goliath overnight in the wireless industry.
Price competition on the low-end — which has been a huge problem for T-Mobile over the past few years — will ease dramatically because the industry will go from Big 4 to Big 3. The company will have a much larger base heading into the mainstream development and roll-out of 5G coverage and 5G phones, giving it broader exposure to that secular growth tailwind.
Broadly, this deal should significantly boost T-Mobile’s long term revenue and profit growth prospects. Thus, if the deal closes in the foreseeable future, TMUS stock could be in the early stages of a healthy long term uptrend in the share price.
Another 5G stock for which the T-Mobile/Sprint merger has huge implications is wireless industry leader Verizon.
Ostensibly, Verizon has a lot to lose in the event T-Mobile becomes a viable third horse in the wireless industry race. The top-end of this industry has long been dominated by two companies. Adding a third player into the mix should create more price competition and Verizon’s operating results could suffer as a result.
But, I think this bear thesis is overstated. In reality, what has really hurt Verizon over the past several years is the fact that coverage standards have been commoditized across the whole industry, so Verizon’s high quality advantage is less meaningful than it has been in the past. 5G changes this. Coverage across the whole wireless industry will be de-commoditized, as some higher-quality players (like Verizon) will have higher quality 5G offerings from the onset. This de-commoditization will ease pricing headwinds, and allow Verizon to simultaneously grow revenues and margins during the 5G boom.
From this perspective, I don’t think VZ stock stands to lose much if the T-Mobile/Sprint merger goes through. Instead, I think this company is positioned to win big during the 5G boom, regardless of how the T-Mobile/Sprint merger plays out.
The reason you watch VZ stock, though, is that the market might sell the stock in the event the merger does close. Given the company’s still-favorable long term fundamentals, that dip should be perceived as a buying opportunity ahead of the 5G boom.
Much like Verizon, the T-Mobile/Sprint merger has huge implications for wireless giant AT&T.
AT&T finds itself in a similar situation to Verizon. On one hand, the T-Mobile/Sprint merger closing creates more competition at the top-end of the wireless industry by turning a market with two leaders, into a market with three leaders. On the other hand, the T-Mobile/Sprint merger closing removes a competitor at the bottom-end of the wireless industry, and thereby improves the overall competitive landscape.
You can probably call it a draw in terms of the T-Mobile/Sprint merger impact on AT&T stock.
But, also like Verizon, AT&T should benefit tremendously over the next several years from wireless industry standards being de-commoditized due to the roll-out of 5G coverage. This will enable higher-quality players like AT&T to re-separate themselves on quality and command more pricing power. That will create a multi-quarter tailwind for AT&T’s revenues, margins, and profits.
Overall, investors should keep an eye on AT&T stock because much like VZ stock, it could be heading into a buyable dip if the T-Mobile/Sprint merger actually closes.
Qualcomm (QCOM)Last, but certainly not least, on this list of 5G stocks to watch after the T-Mobile/Sprint merger won approval is Qualcomm (NASDAQ:QCOM).
Qualcomm is the chip giant behind the 5G movement, owning a wide portfolio of 5G-related IP that will enable it to benefit in a big way as all that 5G-related IP is deployed across the world over the next several years. Its legal issues have been momentarily sidelined, as Apple (NASDAQ:AAPL) has come back on as a Qualcomm customer in a move that solidifies Qualcomm as a 5G leader. The DoJ has essentially asked that a federal appeals court pause enforcement of an antitrust ruling which would have had a negative impact on Qualcomm’s licensing business during the 5G boom.
Consequently, this company appears ready to benefit in a big way over the next few years from the widespread and mainstream roll-out of 5G technology.
The T-Mobile/Sprint merger doesn’t have a big impact on that bull thesis for QCOM stock. If anything, it actually improves it. T-Mobile likely now has the resources to compete on more equivalent footing with Verizon and AT&T, which should promote better 5G coverage offerings across the board. The better those offerings, the more 5G related products will be sold. The more 5G related products are sold, the more money Qualcomm makes.
As such, QCOM stock looks like a solid stock to buy for the forthcoming 5G boom, especially with the T-Mobile/Sprint merger winning approval.
As of this writing, Luke Lango was long S, T, and QCOM.