Since completing its acquisition of Sprint on April 1, T-Mobile (NASDAQ:TMUS) stock has been on fire.
That’s the way investment sites are spinning it. TMUS stock has broken out of its trading range and is at an all-time high.
Things aren’t that simple. It’s true that T-Mobile shares are up 25%. But the average S&P 500 stock is up about 20.5%.
What seems to be happening is that T-Mobile’s valuation is catching up to new peers, Verizon Communications (NYSE:VZ) and AT&T (NYSE:T). T-Mobile is also being bid up because it’s a “pure play” in wireless, while its rivals have gone to the dog track. Verizon, recall, bought Yahoo and America Online. AT&T took even bigger plunges, buying DirecTv and Time Warner.
Does that make T-Mobile a better stock pick?
The next few months may answer a question that has dogged me for some time. Should Verizon and AT&T have left well enough alone?
T-Mobile is now part of a three-cornered duopoly that dominates America’s wireless market. Each of the three has about one-third of all subscribers. As part of its acquisition, T-Mobile has to divest some assets that are supposed to make Dish Network (NASDAQ:DISH) a strong fourth player. Comcast (NASDAQ:CMCSA) has also tried to sell plans, built on customer WiFi, as Xfinity Wireless. Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) is in the mix with its re-seller, Google Fi.
But make no mistake. This is a shared monopoly. How can you tell? T-Mobile’s once go-getter C-suite is emptying out like a Broadway theater after the curtain goes down. Former CEO John Legere has left the building. So have his chief lieutenants.
Here is another tell. After promising it would add thousands of jobs if it won Sprint, T-Mobile is now cutting thousands of jobs. AT&T is doing the same thing. The T-Mobile layoffs are just more startling because they go against explicit pre-merger promises. Karl Bode, a long-time telecom analyst who predicted in February that layoffs were coming, has been proven right again.
In normal times, wireless is a good business to be in. During the March quarter, for instance, T-Mobile brought 8.5% of its $11.1 billion in revenue to the net income line. That’s $1.10 per share. With the layoffs, a dividend might be coming.
There are also events putting pressure on the stock, making now a good time to consider a long-term investment.
Deutsche Telekom (OTCMKTS:DTEGY), which owns 43% of the new company, is currently able to vote Softbank’s shares. It has a right of first refusal on the shares Softbank is selling, and is now negotiating a price to maintain control. Guggenheim recently downgraded TMUS stock to neutral, based partly on that selling pressure.
The Bottom Line on TMUS Stock
Your best chance of getting into a pure wireless play may be now, as T-Mobile circles the wagons.
The future looks promising. The company plans a fast build-out of its 600 MHz and 2.5 GHz spectrum for 5G service. T-Mobile now believes it could get up to 900,000 new postpaid subscriptions from the merger, six times its earlier projection. It’s kicking Boost Mobile, the re-sale unit that’s due to go to DISH, and cutting its value. It’s selling $4 billion of new debt to make sure it has cash to execute its plans.
All this while a leased fiber circuit failure resulted in a catastrophic network cascade June 15, after back-ups also failed. That puts even more pressure on TMUS stock. The current quarter, to be reported Aug. 5, may also be pressured by the pandemic.
Yet the shares are rising. Some smart money is piling in. You might want to think about joining them.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, 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 no shares in companies mentioned in this story.