In the wake of the most expensive wireless radio spectrum auction ever, T-Mobile USA (TMUS) distinguishes itself from competitors who are financially trapped Verizon Communications (VZ) en AT&T (T) this week. After spending much less on airwaves, the fast-growing company plans to buy more T-Mobile shares.
X
T-Mobile said on its investor day this week that it expects free cash flow growth to support a $ 60 billion share buyback from 2023 to 2025.
One of the main reasons why T-Mobile can do more repurchase is that it came up for auction with the most 5G mid-range spectrum.
“The combination of strong medium / long-term guidance should result in a significant increase in (free cash flow) over the next few years and should, in our view, result in a significant appreciation of equities that will only improve further with the introduction of ‘ a significant buyback, ‘said Cowen analyst Colby Synesael in a report to clients.
Meanwhile, Verizon and AT&T remain on the sidelines when it comes to buying back shares.
T-Mobile inventory: synergies with Sprint
Verizon was the best bidder at the auction of ‘C-band’ airwaves. It spent $ 53 billion early, including incentive payments to satellite operators and cleaning costs. AT&T spent $ 27.4 billion on the 5G auction. T-Mobile was just $ 10.5 billion.
The Federal Communications Commission said total 5G auction spending by 21 bidders was $ 81.14 billion. The figure excludes about $ 13.2 billion in relocation costs and incentive payments.
Although neither Verizon nor AT&T will repurchase their own shares in the near future, they will still pay dividends to shareholders. T-Mobile share does not pay dividends.
All three telecommunications companies have offered investor days over the past week to update their financial prospects. They are coming following a government auction of mid-range 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 service revenue would grow by about 4% by 2023. It amounts to between 61 and 62 billion dollars. It previously issued $ 59 billion to $ 61 billion guidelines.
Verizon stock: 5G wireless to boost revenue growth
On its investor day on March 10, Verizon called for revenue growth of 4% or more in 2024. That will come if it scales up 5G wireless services. Verizon predicted 2% revenue growth in 2021, in line with previous guidance. It will increase to 3% growth in 2022 and 2023, the company said.
Verizon also told analysts that they plan to use the 5G mid-range spectrum to deliver fixed broadband services at home. Cable TV companies currently dominate in residential broadband.
“For the first time, Verizon has expressed part of the company’s benefit from the spectrum and networking initiatives and spending, putting a stake in the ground for more than 3% growth in 2022 and 2023, and 4% beyond that, “Raymond said. James Lankan analyst Frank Louthan said in a note to clients.
But the telecommunications company expects to spend $ 10 billion more over the next three years on building 5G wireless network infrastructure. That amounts to about $ 3.3 billion a year. In addition to the $ 18 billion already spent each year on the maintenance of its entire network. Some of it has already been earmarked for 5G.
The overarching question is whether investors will place a higher multiple on Verizon stock before clear evidence points for potential income acceleration in the coming years, balanced against minimal (earnings) growth during this investment phase and capital returns limited to the dividend for the next 4 to 5 year, ”Douglas Mitchelson, an analyst at Credit Suisse, told clients in his report.
T-Mobile stock: 125 million get 5G
Verizon said it expects new revenue to come from 5G enterprise services, including private networks and mobile peripherals. Verizon also said that 5G mobile services will lead to more consumers upgrading to unlimited monthly data plans.
Currently, 61% of consumer subscribers have unlimited data plans, up from 40% in 2018.
In trials, Verizon used high-frequency airwaves for fixed broadband to homes. Analysts say that mid-range spectrum can provide a higher quality service. The telecommunications company expects its fixed broadband service to reach 30 million homes by the end of 2023.
T-Mobile said its 5G mobile network with mid-range spectrum now reaches 125 million people. Verizon aims to reach 175 million by 2022.
Verizon shares are a Dow component and pay a 4.6% dividend. AT&T shares offer an annual dividend yield of 6.9%. But Verizon and AT&T are going to struggle with debt following their spending in the 5G spectrum, MoigettNathanson analyst Craig Moffett said in a report to clients.
“It can be assumed that no dividend is ‘safe’ anymore,” he said. “Verizon’s balance sheet was not as weak as AT & T’s, and their business mix is healthier, but it comes out after the auction. , even more leverage than AT&T. “
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on 5G wireless, artificial intelligence, cyber security and cloud computing.
YOU MAY ALSO LIKE THIS
How this IBD tool simplifies the search for the best stocks
Get full access to IBD stock lists and ratings
Find compelling growth stocks with IBD’s stock of the day
View Breakout Stocks & Technical Analysis
These stocks deserve a place on the IBD rankings