T-Mobile to gain market share, grow postpaid service revenue in next 2 years: BTIG

T-Mobile CEO John Legere (T-Mobile)
BTIG raised its target price for T-Mobile shares to $84, up from $74, citing an expected increase in postpaid service revenue growth.

T-Mobile will add roughly 3 million postpaid phone customers in each of the next two years as it continues to expand into smaller cities and other previously untapped markets, BTIG Research predicted. And that will boost its bottom line in a big way.

The nation’s third-largest carrier will grow its postpaid phone base by 2.8 million users this year, according to BTIG, as growth was dampened by lackluster demand for the iPhone 8 as well as T-Mobile’s decision not to include new Digits users as customer additions. And the carrier’s momentum will only increase over the next two years, Walter Piecyk of BTIG wrote.

“We expect T-Mobile to add ~3 million postpaid phone customers in each of the next two years as it yields the benefits of store growth and LTE network expansion outside of its traditional service areas,” Piecyk said in a blog post. “T-Mobile is poised to gain share in three key segments where its market share is still under 10%: suburban/rural, enterprise and Americans over age 55.”

Indeed, T-Mobile’s success over the last few years has been driven by younger consumers in heavily populated areas. But it is moving aggressively into smaller markets as it begins to deploy the 600 MHz spectrum it won at auction earlier this year, and it has made no secret of its plans to capture more of the enterprise market that it had long ceded to Verizon and AT&T.

BTIG raised its target price for T-Mobile shares to $84, up from $74, citing an expected increase in postpaid service revenue growth.

“We expect nearly 10% postpaid service revenue growth in 2019, on 3 million new postpaid phone net additions and slightly higher ARPU,” Piecyk continued. “Our postpaid phone ARPU estimate would have to drop 6% to $44.90 a month in order for our service revenue to match the consensus estimate compiled by T-Mobile. Our 2019 as-reported EBITDA estimate of $14.6 billion is nearly $2 billion above consensus, and represents 18% growth over the prior year.”

BTIG upped its guidance for shares of Sprint as well, raising it to $4 from $3.85, but its outlook for the smaller carrier wasn’t nearly as rosy. Sprint’s promotion offering a free year of service to users garnered fewer than 13,000 new customers, BTIG said, and it is the only U.S. carrier experiencing rising churn.

And while Sprint’s spectrum holdings are undeniably valuable, Piecyk questioned whether the carrier is doing enough to leverage those airwaves.

“We continue to believe that Sprint’s 2.5 GHz spectrum offers an opportunity to service differentiation if deployed,” Piecyk wrote. “Sprint claims its capital investment is on the rise this year, but there is little to no evidence of network investment by Sprint from tower companies or equipment vendors. Where, specifically, is that money being spent? It’s unclear if that higher capital spending will take place whether or not Sprint can comes to terms on a deal with T-Mobile.”