T-Mobile (NASDAQ:TMUS) reports fourth-quarter results on Feb. 6 and no one cares.
Analysts expect earnings of about $750 million, 83 cents per share, on revenue of $11.8 billion. They’re hoping for 88 cents.
But none of it matters so long as the merger with Sprint (NYSE:S) remains in question. The deal, announced nearly two years ago, is now before U.S. District Judge Victor Marrero, although the U.S. Federal Communication Commission gave the companies its blessing in October.
Failure Is Now an Option
What happens if the merger fails? Most analysts expect T-Mobile to come out OK.
T-Mobile shares were trading Feb. 4 near $80, a market capitalization of $69 billion and a trailing price-to-earnings ratio of 20.7. That’s for a company with expected 2019 revenue of $44.5 billion, bringing about 7.5 cents of each dollar to the net income line. The company has lost just 3% of its value since the Sprint deal was announced.
The balance sheet shows about $11 billion in long-term debt on $86 billion in assets. Those are better numbers than Verizon Communications (NYSE:VZ), although Verizon has a fat dividend yielding 4.1% and T-Mobile has none. T-Mobile could launch a dividend if the deal dies, or resume stock buybacks.
T-Mobile could also put itself up for sale. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), for instance, has a re-sale deal with both T-Mobile and Sprint. Its Google Fi is what’s called a mobile virtual network operator (MVNO). I use it, and it’s a bargain.
It’s far more likely that Sprint would be picked apart, and this could provide some big opportunities for speculators.
That’s because Sprint stock is down about 40% since the T-Mobile deal was announced. Sprint, which is controlled by SoftBank (OTCMKTS:SFTBY), decided to skip a recent 5G spectrum auction, assuming it would be acquired.
Yes, there are many moving parts here.
What About 5G?
The biggest problem, in the event of merger failure, would be T-Mobile’s plans for 5G service, which would have to evolve very quickly. It would be forced, for now, to deploy on high- and low-band spectrum, foregoing Sprint’s mid-band holdings.
But it has already lit up a 600 MHz 5G network and has been advertising it to customers. T-Mobile also has the cash to be a bidder on the so-called C-Band auction, with frequencies between 3.7-4.2 GHz, later this year.
The Bottom Line on T-Mobile Stock
Speculators might want to step in now and grab some Sprint shares, while investors can step up to T-Mobile with confidence.
T-Mobile is a relative bargain among telecom stocks and should continue churning out profits even without Sprint. Sprint, meanwhile, is subject to being bought in pieces, and this provides an opportunity.
If the FCC really wants to provide competition in this space, what would be more competitive than letting Amazon or Google in? Both are now worth about $1 trillion, while Sprint’s market cap is down to $18.6 billion. Google is already a Sprint MVNO. Comcast (NASDAQ:CMCSA), which has been trying to sell itself as a wireless carrier under the Xfinity brand, could also be a bidder.
New deals, in short, are guaranteed if the old deals fail to happen. Buying now puts you in the frame to profit from them.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.