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TMUS – Market expectations are for Uniform ROA to stabilize near historical highs, but management appears concerned about cash flow, their 5G build-out, and churn rates

May 3, 2021

  • T-Mobile US, Inc. (TMUS:USA) currently trades above recent averages relative to UAFRS-based (Uniform) earnings, with a 39.9x Uniform P/E. At these levels, the market is pricing in expectations for profitability to stabilize near historical highs, but management may be concerned about free cash flow generation, 5G network build-outs, and churn rates

  • Specifically, management may lack confidence in their ability to maintain free cash flow generation, meet adjusted EBITDA guidance, and continue realizing synergies from their Sprint merger. Additionally, they may be downplaying concerns about the progress and the complexity of the Sprint merger integration, Verizon’s competitive actions, and the pace of consumer transitions to 5G. Moreover, management may lack confidence in their ability to execute their national capital plan, expand to small-town rural communities, and sustain market share gains. They may also be exaggerating the strength of 5G tailwinds from gaming, the quality of their asset base, and the capabilities of their 5G network. Finally, management may lack confidence in their ability to sustain Ultra Capacity 5G user growth, strengthen their brand image and customer loyalty, and maintain industry-low churn rates