- T-Mobile’s stock is one of the best performing technology securities this year.
- The company retains a market leading position in the U.S. wireless industry.
- The integration of Sprint is nearly complete and should improve T-Mobile’s earnings and free cash flow position.
Up 14% year to date, wireless network operator T-Mobile (NASDAQ:TMUS) has been a lone bright spot in an otherwise dismal technology sector.
So far in 2022, the technology laden Nasdaq index is down 14% as investors sell out of technology stocks in favor of more cyclical, blue-chip names that have pricing power in an inflationary environment. With the U.S. Federal Reserve raising interest rates too cool off inflation, technology stocks are not as popular as they were a few months ago.
And the downturn is not confined to high growth, unprofitable start-ups. Established tech companies such as Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL) have seen their share prices fall 10% or more this year. Yet Bellevue, Washington-based T-Mobile has bucked the downturn, making it a rare outperformer among tech securities.
TMUS spent most of the second half of 2021 on the decline. However, the share price appeared to hit a bottom of $101.51 on Jan. 21. Since then, the stock has rallied and now trades at $133.61 per share. The rebound can be attributed to T-Mobile’s dominance in the market for 5G wireless networks and stronger than expected subscriber additions. At the end of last year, T-Mobile’s 5G network covered 310 million people, of which 210 million were within its “Ultra Capacity 5G” network. Additionally, T-Mobile added 5.5 million total postpaid subscribers throughout last year.
Equally important, T-Mobile has provided exceptionally strong forward guidance to analysts, forecasting that it will add 5 million to 5.5 million postpaid customers this year, well ahead of Wall Street expectations. T-Mobile’s 5G network coverage and subscriber additions dwarf those of its main rivals in the space, Verizon (NYSE:VZ) and AT&T (NYSE:T), each of which has seen their share price rise no more than 5% year-to-date. The bottom line is that T-Mobile is the market leader when it comes to the rollout of 5G wireless networks in the U.S. and it continues to add new paying customers are a strong clip, which have helped push its stock price higher.
Some analysts estimate that T-Mobile has a two-year lead on its rivals when it comes to 5G deployment. That lead is largely due to the company’s acquisition of Sprint. The Sprint deal officially closed in 2020, but T-Mobile is only now finalizing its integration. (T-Mobile started to shutdown Sprint’s legacy 3G wireless network in March of this year).
What Sprint gives T-Mobile is an extremely valuable mid-band spectrum that is readily available, more reliable and much faster than older 4G wireless. Essentially, Sprint’s 5G technology enables T-Mobile to immediately enter the market for wireless broadband service, something its competitors cannot do.
The integration of Sprint has been a drain on T-Mobile’s earnings in recent quarters. However, T-Mobile’s earnings should get a lift moving forward as synergies from the Sprint acquisition are realized. T-Mobile has guided for free cash flow of between $13 billion to $14 billion in 2023, up from $6 billion last year.
The growing amount of cash should enable the company to fund sizable stock buybacks in coming years, something management has hinted at in recent calls with analysts. The free cash flow could also help the company to grow and strengthen its 5G wireless lead over its rivals.
Buy TMUS Stock
While T-Mobile stock has had a nice run in recent months, analysts see further gains ahead. Among 26 analysts who cover the company, the median price target on the shares is currently $166.50, implying 26% upside from current levels. The low price target on the stock is $128 a share, which is only slightly lower than where the stock is currently trading.
With its integration of Sprint nearly completed, strong subscriber growth and a market leading position in 5G wireless networks, the future looks bright for T-Mobile and its shareholders. TMUS stock is a buy.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.