It’s a rarity to see a tech or telecom stock that isn’t in deep decline for 2022, but T-Mobile (TMUS 0.23%) has defied the odds, rewarding shareholders with a healthy 25% annual return.
Not only that, but the company just made an announcement that could spark even more upheaval.
How T-Mobile did it
Every tech stock that’s up over the course of the year has likely experienced some kind of twist or special situation that allowed it to defy the market’s gravity, and T-Mobile is one such example. The company continues to maintain its lead in the 5G midband build, having taken the lead by buying Sprint and its midband 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. In its latest second-quarter earnings release, management raised its synergy target for the year to a range of $5.4 billion to $5.6 billion as it closes the remaining Sprint legacy network and migrates Sprint’s remaining customers to the T-Mobile.
Meanwhile, it appears T-Mobile’s lead in 5G mid-band coverage is starting to make a difference with customers as more people buy 5G phones. T-Mobile acquired more than 1.7 million net new customers last quarter, leading the industry. Meanwhile, it experienced lower customer traffic than Verizon (VZ 2.23%) for the first time ever. Additionally, while T-Mobile has traditionally been a lower-priced brand, it’s seeing more and more people upgrade to its premium Magenta Max plan, leading to better contract ARPU growth ( average revenue per user) in five years to $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 Northeast United States.
And now, $60 billion for shareholders
Unlike other major telcos, T-Mobile doesn’t pay dividends, instead focusing on integrating Sprint, which requires upfront investment and paying off debt. However, on Thursday, T-Mobile issued an 8-K form announcing that its board has authorized a new $14 billion share repurchase program.
Management had previously announced a plan to disburse $60 billion in stock buybacks from 2023 to 2025, but it looks like the Sprint integration is ahead of schedule and nearing its final stages, which will free up cash for returns. So while the initial authorization, which runs until next September, may be smaller than previously thought, it’s also starting earlier. Assuming T-Mobile continues to earn net additions, its free cash flow should impact growth in a big way.
The $14 billion represents 7.6% of T-Mobile’s current market cap at these prices, and the three-year $60 billion plan will amount to about a third of its total market cap. Moreover, since Deutsche Telekom (DTEGY 4.46%) owns 48.4% of T-Mobile’s stock and Softbank (SFTB.Y 2.42%) owns another 3%, which at $60 billion makes up two-thirds of T-Mobile’s publicly traded shares at these prices.
So if Deutsche Telekom and Softbank don’t sell, shedding that much stock could push the stock price much higher — assuming T-Mobile’s operational performance remains so strong. So even though this telecom stock has been a “defender,” I wouldn’t count on further gains as this new rally begins.
Telecom and cable companies are each encroaching on each other’s turf these days, with traditional cable companies now offering cellular plans to bundle with their broadband and cable offerings, and 5G now opening up broadband wireless for telecom companies to follow the big cables. With each sector encroaching on the other’s turf, it’s hard to know exactly who will win in this new competitive environment.
Ultimately, it will go down in value. And with T-Mobile having nationwide coverage, a mid-band 5G lead over other telcos, combined with a value price point and other “non-carrier” consumer benefits, T-Mobile looks set to lead this race for a while.
Despite its strong performance this year, it’s not too late to buy 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 said companies. The Motley Fool recommends Softbank Group, T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.