T-Mobile likely grew its postpaid customer base during the second quarter, according to Barclays, but its stock value has been dampened by increasing concerns it may not participate in what could be a flurry of M&A activity in the wireless market.
Barclays upped its guidance for T-Mobile’s postpaid phone net adds during the second quarter to 595,000 from 550,000, marking an 8% increase, and it lowered predicted postpaid churn to 1.20%, down from 1.22%. But it slashed its forecast for T-Mobile’s prepaid gains by 32.5%, noting heightened competition in a market that has attracted increased attention from major U.S. wireless carriers over the last 18 months.
“Broadly speaking, we increased our postpaid net add estimates while reducing our prepaid net add estimates given our expectations given our expectations [sic] that Sprint has been aggressive with its prepaid Boost brand during the quarter,” Amir Rozwadowski wrote in a note to investors. “Our full-year estimates remain largely unchanged. Although our postpaid net adds increase as we continue to expect T-Mobile’s share-gain momentum to continue even amidst a heightened competitive (industrywide unlimited) backdrop … In our view, there is still a large and untapped opportunity to gain share vs. peers as it looks to simplify its offerings in coming iterations of its Un-carrier strategy.”
Growing concerns that T-Mobile may not lock up a significant dance partner in the near future have been a drag on its stock price, however, Rozwadowski said. Rumors of consolidation in the wireless industry and of cross-market deals between carriers, digital media companies and cable operators have heated up in recent months as those segments collide, and T-Mobile has been the center of much of that speculation.
But some investors fear the nation’s third-largest carrier could be left without a dance partner—one recent report, for instance, has Sprint in discussions with Comcast and Charter over a potentially major wireless tie-up that might leave T-Mobile out in the cold. Those concerns may be undue, Rozwadowski said, but they’re weighing down T-Mobile shares nonetheless.
“In summary, there seems to be a disconnection between the company’s recent stock performance and its underlying business performance/expectation for continued share gains. While the introduction of unlimited plans earlier this year could justify some multiple compression, current valuation levels now seem to materially discount the prospects for: 1) a deal and 2) shareholder return initiatives,” Rozwadowski wrote. “Over the past few months, we’ve seen a string of new developments across the telecom and cable sectors. Overall, these developments have led to rising concerns that T-Mobile may have a diminished role in prospective M&A … In our view, risk/reward for T-Mobile looks attractive at current valuation levels.”