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came roaring out of the gates in its first months with Sprint in the fold.
The newly merged wireless company added 1.1 million monthly subscribers in the second quarter, far ahead of Wall Street estimates and customer growth at rivals
(ticker: T) and
also reported generally better-than-expected financial performance on Thursday evening, and added solid guidance for the second half of the year.
Analysts gushed over the results and T-Mobile’s rapid progress on integrating Sprint’s network, retail operations, back-office functions, and brand.
“As the first quarter for the combined Sprint/T-Mobile, this quarter was an important milestone, as the company adjusted Sprint subscribers and accounting to T-Mobile policies and early integration efforts got under way,” wrote Morgan Stanley analyst Simon Flannery. “We think these results and guidance should help de-risk the company for investors concerned about merger integration challenges.”
On the network integration front, T-Mobile said on Thursday that the company has been adding Sprint’s 2.5 GHz mid-band spectrum to 700 cell sites a week. Management added that 85% of legacy Sprint customers have devices that are compatible with T-Mobile’s network, and that 10% of Sprint customer traffic is already on the T-Mobile network. T-Mobile’s next-generation 5G network now covers 250 million people across 1.3 million square miles in the U.S., according to the company.
“The migration will free up enormous amounts of capacity, which can be turned to the 5G opportunity and what we believe will be network advantage versus Verizon and AT&T,” MoffettNathanon’s Craig Moffett wrote. “That, in turn, should translate to further share gains, particularly in enterprise, and, with greater scale, higher margins. T-Mobile is at the very starting line of this virtuous cycle.”
Other analysts are similarly bullish on T-Mobile’s ability to leverage greater scale and an improved network to close the profitability gap with AT&T and Verizon in the coming years. Savings from eliminating duplicative costs from Sprint could provide another route to wider profit margins.
When T-Mobile first proposed a merger over two years ago, it estimated that synergies would be worth $6 billion a year within a few years of the merger. T-Mobile has outperformed since that announcement, and the view among analysts is that it will soon offer an updated estimate that is better than the initial number.
“While T-Mobile did not raise its deal synergy guide, commentary continues to indicate significant upside to the $6 billion that was laid out at the start of the deal,” J.P. Morgan analyst Philip Cusick wrote. “We expect management is still getting comfortable with all of the moving pieces in this deal, and hope for some update before the end of the year.”
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The bullish thesis on T-Mobile remains its ability to win market share and become an early leader in 5G adoption. That could take off later this year with the release of a 5G iPhone from
(AAPL) and a faster network buildout. Over time, that should lead to faster profit growth than competitors.
“Better 2020 results; bigger and faster long-term synergies; share gains likely to take off as the company starts to push its network advantage more aggressively in 4Q,” New Street analyst Jonathan Chaplin wrote. “Seems good to us. We will no doubt be nudging up estimates.”
Seventy-seven percent of analysts have T-Mobile stock at Buy, while 19% recommend a Hold. One analyst rates T-Mobile at Sell. Their average target price is about $121, about 3% above the stock’s recent level of $116, but that target could increase in the coming days as analysts update their models for T-Mobile’s second quarter results and guidance.
T-Mobile stock is up about 49% in 2020, versus a 4.8% return for the S&P 500.
T-Mobile US came roaring out of the gates in its first months with Sprint in the fold.
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