T-Mobile: Here Comes the Monster Buyback – The Motley Fool

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Motley Fool Issues Rare “All In” Buy Alert
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It’s a rare thing to see a tech or telecom stock that isn’t down big for 2022, but  T-Mobile (TMUS -2.01%) has defied the odds, rewarding shareholders with a nice 25% gain on the year.
Not only that, but the company just made an announcement that could fuel even larger upside.
Any tech stock that’s up on the year has probably experienced some sort of turnaround or special situation that has allowed it to defy market gravity, and T-Mobile is such an example. The company continues to maintain its lead in the mid-band 5G buildout, after it grabbed the lead by acquiring Sprint and its mid-band spectrum in early 2020.
In 2022, T-Mobile has continued to gain market share from the competition, while also reaping cost synergies from the Sprint deal. On 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 remaining legacy Sprint network and migrates the remaining Sprint customers to T-Mobile’s network.
Meanwhile, it appears T-Mobile’s lead in mid-band 5G coverage is starting to make a difference with customers as more people acquire 5G phones. T-Mobile acquired more than 1.7 million net new customers last quarter, leading the industry. Meanwhile, it experienced lower customer churn than Verizon (VZ -1.03%) for the first time ever. Furthermore, while T-Mobile has traditionally been a lower-priced brand, it’s seeing more and more people upgrade to its Magenta Max premium plan, leading to its best postpaid ARPU (average revenue per user) growth in five years to $48.96 per month.
T-Mobile also continues to rack up wireless broadband customers, infringing on the territory of 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.
Unlike the other major telecoms, T-Mobile doesn’t pay out a dividend, instead focusing on integrating Sprint, which takes upfront investment, and paying down debt. However, on Thursday, T-Mobile issued a form 8-K announcing its board has authorized a new $14 billion share repurchase program.
Management had previously announced a plan to disburse $60 billion in share buybacks from 2023 to 2025, but it appears as though the Sprint integration is ahead of plan and nearing its final stages, which will free up cash for the buyback. So while the initial authorization, which lasts through next September, may be smaller than some thought, it’s also starting earlier. Assuming T-Mobile continues to gain net additions, its free cash flow should inflect upward in a big way.
The $14 billion amounts to 7.6% of T-Mobile’s current market capitalization at these prices, and the $60 billion three-year plan would amount to about one-third of its total market cap. Moreover, since Deutsche Telekom (DTEGY -3.04%) owns 48.4% of T-Mobile’s stock and Softbank (SFTB.Y -3.02%) owns another 3%, that $60 billion amounts to two-thirds of T-Mobile’s publicly traded share float at these prices.
So if Deutsche Telekom and Softbank don’t sell, the elimination of that many shares could boost the share price much higher — assuming T-Mobile’s operational performance remains this strong. So even though this telecom stock has been a “defensive,” I wouldn’t count out even further gains as this new buyback kicks in.
Telecom and cable companies are each encroaching on each 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 for telecom companies to go after big cable. With each sector encroaching on the other’s turf, it’s hard to know exactly who is going to win in this new competitive environment.
Ultimately, it is going to come down to value. And with T-Mobile having nationwide coverage, a lead in mid-band 5G over the other telcos, combined with a value price point and other “Un-carrier” consumer perks, T-Mobile looks like it could lead this race for a while.
Despite its strong outperformance this year, it’s not to late to buy into the T-Mobile story.

Billy Duberstein has positions in T-Mobile US. The Motley Fool has positions in and recommends SoftBank Group Corp. His clients may own 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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