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T-Mobile US
- Sector: Technology Media and Telecommunications
- Sub Sector: Telecommunications
- Region: US
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Fundamental View
AS OF 15 Feb 2024We expect T-Mobile will maintain its position as the industry leader in postpaid phone net additions, service revenue, EBITDA and FCF growth in 2024. We think the company has significant subscriber runway remaining in the suburban/rural and enterprise markets.
Adjusted net leverage (2.6x at 4Q23) is nearly half a turn lower than AT&T and Verizon. Relatively strong EBITDA growth and a modest dividend commitment results in greater financial flexibility than peers.
T-Mobile benefits from the strongest spectrum position in the industry, including an average of 181 MHz in the 2.5 GHz band, which results in better 5G network coverage than AT&T and Verizon.
Business Description
AS OF 15 Feb 2024- TMUS is the one of the top 3 U.S. wireless carriers and is owned ~50% by Deutsche Telekom (DT). On April 1, 2020, TMUS and S completed an all-stock merger, valuing S at an EV of approximately $59.7 bn.
- TMUS ended 4Q23 with ~120 mn customers, including 98 mn postpaid and 22 mn prepaid.
- TMUS reaches 330+mn POPs with its Extended Range 5G network (using the 600 MHz spectrum) and reaches 300mn customers with its Ultra Capacity 5G.
Risk & Catalysts
AS OF 15 Feb 2024Converged wireless/broadband offers from cable operators and an upstart competitor in the form of DISH raises the risk of pricing pressure in the mature consumer wireless market.
With T-Mobile’s credit rating now comfortably in the mid-BBB area and leverage in the vicinity of the group’s mid-2x target area, we expect the company’s capital allocation to shift toward share buybacks.
The company has expressed an interest in fiber assets. At present, T-Mobile is focused on an “asset-lite” fiber strategy, but there is some concern the group could eventually deploy more capital to this area (potentially via M&A).
Key Metrics
AS OF 15 Feb 2024| Baa2/BBB/BBB+ | FY19 | FY20 | FY21 | FY22 | FY23 |
|---|---|---|---|---|---|
| Revenue | 45,151 | 68,397 | 80,118 | 79,571 | 78,558 |
| Organic Revenue Growth | 4.3% | 5.8% | 7.3% | (0.7%) | (1.3%) |
| EBITDA | 13,536 | 24,557 | 26,924 | 27,821 | 29,428 |
| Adj. EBITDA Growth | 9.8% | 4.3% | (64.0%) | 33.9% | 5.8% |
| Adj. EBITDA Margin | 30.0% | 35.9% | 33.6% | 35.0% | 37.5% |
| CapEx % of Sales | 13.1% | 16.1% | 15.4% | 17.6% | 12.5% |
| Total Debt | 29,508 | 76,660 | 79,574 | 78,425 | 78,425 |
| Net Debt | 27,980 | 66,275 | 72,943 | 73,918 | 73,290 |
| Gross Leverage | 2.2x | 3.5x | 3.4x | 3.0x | 2.7x |
| Net Leverage | 2.1x | 3.0x | 3.1x | 2.8x | 2.5x |
| Interest Coverage | 11.9x | 9.0x | 7.2x | 8.0x | 8.3x |
| FCF as % of Debt | 22.0% | 14.1% | 13.7% | 13.2% | 19.2% |
CreditSights View
AS OF 28 May 2024We expect TMUS will once again lead the Big 3 in major KPIs in 2024, including high-single digit EBITDA growth and low-double digit FCF growth. We view earnings/growth visibility as higher than peers, with the outlook supported by its leading 5G mid-band coverage (over 300 million PoPs with ~200 MHz) and historical under-penetration in rural and enterprise markets. Credit metrics are best in class, with the group already at its ~2.5x net leverage target while AT&T (2.9x) and Verizon (3.0x) are still in deleveraging mode. While the industry is very focused on net leverage, TMUS stands out in terms of FCF generation and the lack of a substantial dividend obligation. To put it simply, TMUS has a cleaner growth story as a challenger and a great track record on execution.
Recommendation Reviewed: May 28, 2024
Recommendation Changed: March 18, 2021
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