After the most expensive auction of wireless radio spectrum ever, T-Mobile US (TMUS) stood out from its financially limited rivals Verizon Communications (VZ) and ATT (T) this week. Having spent much less on radio waves, the fast-growing company plans to buy more shares in T-Mobile.
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On this week’s investor day, T-Mobile said it expects free cash flow growth to support a $ 60 billion stock buyback from 2023 to 2025. Management said it aims to have a free cash flow of $ 13 billion to $ 14 billion in 2023 and $ 18 billion in 2026.
One of the main reasons why T-Mobile can make more repurchases is that it entered the auction with the largest spectrum of 5G mid-band.
“The combination of a strong medium / long term orientation should result in significant increases (free cash flow) in the coming years and should, in our opinion, result in a significant appreciation of the shares that will only be reinforced by the introduction of a significant repurchase “Cowen analyst Colby Synesael said in a report to customers.
Meanwhile, Verizon and AT&T are left out when it comes to share buybacks.
T-Mobile Stock: Synergies with Sprint
Verizon was the biggest bidder in the “C band” radio wave auction. At first, it spent $ 53 billion, including incentive payments to satellite operators and compensation costs. AT&T spent $ 27.4 billion on the 5G auction. T-Mobile raised just $ 10.5 billion.
The Federal Communications Commission said total spending on 5G auctions by 21 bidders totaled $ 81.14 billion. That figure excludes about $ 13.2 billion in relocation costs and incentive payments.
Although neither Verizon nor AT&T will repurchase its own shares in the near future, they will continue to pay dividends to shareholders. T-Mobile’s shares do not pay dividends.
All three telecommunications companies organized investor days last week to update their financial outlook. They follow a government auction of mid-band spectrum for 5G services. In the case of T-Mobile, it also updated the expected synergies from its merger with Sprint last year.
T-Mobile said it expects service revenue growth to be around 4% by 2023. This amounts to a range of $ 61 billion to $ 62 billion. Previously, there was a forecast of $ 59 billion to $ 61 billion.
Verizon Stock: 5G Wireless to drive revenue growth
On investor day, March 10, Verizon asked for revenue growth of 4% or more in 2024. This will happen when it expands 5G wireless services. Verizon expects revenue growth of 2% in 2021, in line with previous projections. This will increase to a 3% growth in 2022 and 2023, the company said.
In addition, Verizon told analysts that it plans to use the 5G mid-band spectrum to provide fixed broadband services for homes. Cable TV companies currently dominate residential broadband.
“Verizon articulated for the first time some of the benefits for the spectrum business and network and spending initiatives, placing a stake in the field for growth of more than 3% in 2022 and 2023, and 4% in addition”, Raymond O James analyst Frank Louthan said in a note to customers.
But the telecommunications company expects to spend $ 10 billion more on building 5G wireless network infrastructure over the next three years. This amounts to about $ 3.3 billion a year. In addition to the $ 18 billion a year he already spends on maintaining his entire network. Part of that is already reserved for 5G.
“The general question is whether investors will place a higher multiple on Verizon’s shares before the clear test points for potential revenue acceleration in future years, balanced against minimal (profit) growth during this investment phase and capital returns limited to the dividend for the next 4 to 5 years, “said Credit Suisse analyst Douglas Mitchelson in his report to clients.
T-Mobile stock: 125 million getting 5G
Verizon said it expects new revenue to come from corporate 5G services, including private networks and cutting-edge mobile computing. In addition, Verizon said that 5G mobile services will result in more consumers upgrading to unlimited monthly data plans.
Currently, 61% of consumer subscribers have unlimited data plans, compared to 40% in 2018.
In the tests, Verizon used high frequency waves for fixed broadband for homes. The middle band spectrum can provide higher quality services, analysts say. Telecom expects its fixed broadband service to reach 30 million households by the end of 2023.
T-Mobile said its 5G mobile network using mid-band spectrum now reaches 125 million people. Verizon plans to reach 175 million by the end of 2022.
A component of Dow, Verizon’s stock pays a 4.6% dividend. AT&T shares offer an annualized dividend yield of 6.9%. But Verizon and AT&T will face debt after spending on the 5G spectrum, said Moffett analyst Nathanson Craig Moffett in a report to customers.
“None of the dividends can be considered ‘safe’ anymore,” he said. “Verizon’s balance sheet was not as weak as AT&T’s and its business mix is healthier, but they emerge after the auction spend even more leveraged 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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