T-Mobile: Here is the Monster Buyback


It’s rare to see a tech or telecom stock that isn’t down for 2022, but T-Mobile (TMUS 0.23%) defied predictions, rewarding shareholders with a handsome gain of 25% over the year.

Not only that, but the company just made an announcement that could fuel an even bigger upside.

How T-Mobile Did It

Any tech stock rising over the year has likely had some sort of turnaround or special situation that allowed it to defy the gravity of the market, and T-Mobile is an example of that. The company continues to maintain its lead in building mid-band 5G, having taken the lead by acquiring Sprint and its mid-band spectrum in early 2020.

In 2022, T-Mobile continued to gain market share from the competition, while reaping cost synergies from the Sprint deal. In the recent second quarter earnings release, management raised its synergy target for the year to a range between $5.4 billion and $5.6 billion as it shuts down the Sprint network. remaining legacy and migrating remaining Sprint customers to T-Mobile’s network.

Meanwhile, it looks like T-Mobile’s lead in mid-band 5G coverage is starting to make a difference to customers as more and more people get 5G phones. T-Mobile acquired more than 1.7 million net new customers last quarter, leading the industry. During that time, it experienced lower customer churn than Verizon (VZ 2.23%) For the very first time. Additionally, although T-Mobile has traditionally been a low-cost brand, more and more people are switching to its premium Magenta Max plan, earning it its best postpaid ARPU (average revenue per user) growth in five years at $48.96 per month.

T-Mobile also continues to rack up wireless broadband customers, encroaching on the territory of the big cable companies. Last quarter, T-Mobile gained 560,000 net new broadband customers and just announced an expansion of its 5G wireless broadband service in the Northeastern United States.

And now $60 billion for shareholders

Unlike other major telecommunications companies, T-Mobile does not pay a dividend, instead focusing on integrating Sprint, which requires an upfront investment, and paying down debt. However, on Thursday, T-Mobile released a Form 8-K announcing that its board had authorized a new $14 billion stock repurchase program.

Management previously announced a plan to disburse $60 billion in share buybacks from 2023 to 2025, but it appears the Sprint integration is ahead of plan and nearing its final stages, which will free up cash for redemption. So while the initial clearance, which lasts until next September, may be smaller than some thought, it also starts earlier. Assuming T-Mobile continues to earn net adds, its free cash flow should increase significantly.

The $14 billion represents 7.6% of T-Mobile’s current market capitalization at those prices, and the $60 billion three-year plan would represent about a third of its total market capitalization. Moreover, since Deutsche Telekom (DTEGY 4.46%) owns 48.4% of the shares of T-Mobile and Software bank (SFTB.Y 2.42%) owns another 3%, that $60 billion represents two-thirds of the float in T-Mobile’s publicly traded stock at those prices.

So if Deutsche Telekom and Softbank don’t sell, the elimination of so many stocks could send the stock price much higher — assuming T-Mobile’s operating performance remains that strong. So even though this telecommunications stock has been “defensive”, I still wouldn’t count any more gains as this new buyback goes into effect.

Look forward

Telecom and cable companies are each encroaching on the other’s turf these days, with traditional cable companies now offering mobile plans to bundle with their broadband and cable offerings, and 5G now opening up wireless broadband to telecommunications companies to tackle big cable. With each sector encroaching on the territory of the other, it is difficult to know exactly who will win in this new competitive environment.

In the end, it will depend on the value. And with T-Mobile having nationwide coverage, a mid-band 5G lead over other carriers, combined with great pricing and other “Un-carrier” consumer benefits, T-Mobile looks like it could lead this race for a while. .

Despite its strong outperformance this year, it’s not too late to buy the T-Mobile story.

Billy Duberstein holds positions at T-Mobile US. The Motley Fool fills positions and recommends SoftBank Group Corp. Its clients may hold shares of the companies mentioned. The Motley Fool recommends Softbank Group, T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.

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