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T-Mobile Stock May Benefit From T-Mobile Plans $60 Billion Buyback While Verizon, AT&T Struggle

In the aftermath of the most expensive auction of wireless radio spectrum ever, T-Mobile US (TMUS) set itself apart from financially strapped rivals Verizon Communications (VZ) and AT&T (T) this week. Having spent much less on airwaves, the fast-growing company plans to buy more T-Mobile stock.




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At its investor day this week, T-Mobile said it expects free cash flow growth to support a $60 billion stock buyback from 2023 to 2025. Management said it’s targeting free cash flow of $13 billion to $14 billion in 2023 and $18 billion in 2026.

One key reason T-Mobile can do more buybacks is that it came into the auction having the most 5G midband spectrum.

“The combination of strong mid/long-term guidance should result in meaningful step-ups in (free cash flow) the next several years and should in our view result in meaningful stock appreciation that will only be further enhanced by the introduction of a meaningful buyback,” Cowen analyst Colby Synesael said in a report to clients.

Meanwhile, Verizon and AT&T are staying on the sidelines when it comes to share buybacks.

T-Mobile Stock: Synergies With Sprint

Verizon was the top bidder in the auction of “C-band” airwaves. It spent $53 billion early on, including incentive payments to satellite operators and clearing costs. AT&T spent $27.4 billion in the 5G auction. T-Mobile ponied up just $10.5 billion.

The Federal Communications Commission said total 5G auction spending by 21 bidders totaled $81.14 billion. That figure excludes about $13.2 billion in relocation costs and incentive payments.

While neither Verizon or AT&T will buy back their own stock in the near future, they’ll continue paying dividends to shareholders. T-Mobile stock doesn’t pay dividends.

All three telecom firms hosted investor days this past week to update their financial outlooks. They come in the wake of a government auction of midband spectrum for 5G services. In the case of T-Mobile, it also updated expected synergies from its merger with Sprint last year.

T-Mobile said it expects service revenue growth of about 4{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} by 2023. That amounts to a range of $61 billion to $62 billion. It earlier issued guidance of $59 billion to $61 billion.

Verizon Stock: 5G Wireless To Boost Revenue Growth

At its investor day March 10, Verizon called for revenue growth of 4{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} or more in 2024. That will come as it scales up 5G wireless services. Verizon forecast revenue growth of 2{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} in 2021, in line with prior guidance. That will increase to 3{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} growth in 2022 and 2023, the company said.

Also, Verizon told analysts it plans to use the 5G midband spectrum to deliver fixed broadband services to homes. Cable TV companies currently dominate in residential broadband.

“Verizon has for the first time articulated some of the upside to the business from the spectrum and the network initiatives and spending, putting a stake in the ground for over 3{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} growth in 2022, and 2023, and 4{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} beyond that,” Raymond James analyst Frank Louthan said in a note to clients.

But the telecom firm expects to spend $10 billion more on building 5G wireless network infrastructure over the next three years. That amounts to roughly $3.3 billion a year. It’s in addition to the $18 billion each year it already spends maintaining its entire network. Some of that already is earmarked for 5G.

“The overarching question is whether investors will place a higher multiple on Verizon stock in advance of clear proof points for potential revenue acceleration in future years, balanced against minimal (earnings) growth during this investment phase and capital returns limited to the dividend for the next 4 to 5 years,” Credit Suisse analyst Douglas Mitchelson said in his report to clients.

T-Mobile Stock: 125 Million Getting 5G

Verizon said it expects new revenue to come from 5G enterprise services, including private networks and mobile edge computing. In addition, Verizon said 5G mobile services will result in more consumers upgrading to unlimited monthly data plans.

Currently, 61{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} of consumer subscribers have unlimited data plans, up from 40{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} in 2018.

In trials, Verizon has used high-frequency airwaves for fixed broadband to homes. Midband spectrum could provide higher quality service, analysts say. The telecom expects its fixed broadband service to reach 30 million homes by the end of 2023.

T-Mobile said its 5G mobile network using midband spectrum now reaches 125 million people. Verizon aims to reach 175 million by the end of 2022.

A Dow component, Verizon stock pays a 4.6{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} dividend. AT&T stock offers a 6.9{41490b4d0cf0dbc5ec3f65e11fff509c7d6ed2a53a838ebf7adf43f0908f07f3} annualized dividend yield. But Verizon and AT&T will struggle with debt in the wake of their spending in the 5G spectrum, MoffettNathanson analyst Craig Moffett said in a report to clients.

“Neither dividend can be assumed to be ‘secure’ anymore,” he said. “Verizon’s balance sheet wasn’t as weak as AT&T’s going in and their business mix is healthier, but they emerge after the auction spend even more levered than AT&T.”

Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cybersecurity and cloud computing.

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