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3 Reasons T-Mobile Shareholders Have a Lot to Look Forward to This Year

By Billy Duberstein - Mar 10, 2020 at 9:54AM

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Coronavirus and oil be darned.

While the coronavirus is likely to severely affect all sorts of travel-related stocks, as well as companies that offer group gatherings, "stay-at-home" stocks with products and services consumers need won't be as affected. This is especially true for those businesses offering a low-cost, customer-friendly experience. In fact, these business may even thrive in the current environment.

T-Mobile (TMUS -0.05%) is one such company, and its stock, while down recently, is actually up for the year while the market is down significantly. If looking for something to buy amid the current panic-driven sell-off, T-Mobile may be looking especially good right now. Here's why.

A group of young T-mobile employees in celebratory mode.

Image source: T-Mobile.

No. 1: The Sprint merger was approved

T-Mobile and partner Sprint (S) had agreed to a merge all the way back in April of 2018. After a lengthy, uncertain, and drawn-out process, the companies finally received their sign-off to merge after winning in court against many states' attorneys general just last month.

The "new" T-Mobile, combined with Sprint, will be a formidable force in further shaking up the telecom space. By unifying T-Mobile's 600 MHz spectrum with Sprint's 2.5 GHz spectrum, T-Mobile plans on developing a premier 5G network that could leapfrog rivals AT&T (T 0.17%) and Verizon (VZ 0.22%), which have traditionally been known to offer higher-quality 4G.

That remains to be seen, as the 5G wars will take years to wage, but should T-Mobile even get its offering up to par, its lower costs for consumers and customer-friendly ethos are bound to take more market share.

No. 2: The stock is still cheap

Not only will the unifying of the two networks make the combined entity a stronger competitor, but the new T-Mobile will also realize some $43 billion in synergies after both companies merge. Management expects about two-thirds of those savings to come from the network side, with another one-third coming from back-office operations.

The combined company will need them. Sprint made little in the way of any operating profits over the past nine months, and Sprint also has a significant $37.3 billion in debt on its balance sheet. However, T-Mobile was able to recently renegotiate the deal, with Sprint majority owner Softbank (SFTB.Y -0.41%) agreeing to surrender 48.8 million shares because of Sprint's lackluster performance over that time. That means less dilution for T-Mobile shareholders.

Aside from Sprint, T-Mobile has been growing its profits rather strongly. On its last earnings call, the company forecast between $5.4 billion and $5.6 billion in 2020 free cash flow as a standalone entity. Though the stock initially surged after earnings, the coronavirus sell-off has brought it back down to less than 12 times those estimated cash flow levels.

With a healthy T-Mobile wringing more synergies out of the combined company, along with the upcoming sale of the Boost Mobile business and spectrum licenses to DISH Network (DISH -1.21%), T-Mobile should be able to become a very profitable company.

No: 3: It should weather, if not benefit from, coronavirus

Though many citizens may not be traveling anytime soon, T-Mobile's business shouldn't really be affected. After all, the last thing people might part with is their mobile phone plan, perhaps even more so than their residential broadband connection. Not only that, but as the lower-cost option of the three main players in wireless, should consumers become cost-conscious, they'll probably switch from one of the two larger players to T-Mobile, not the other way around.

In addition, T-Mobile management hinted at another "Un-Carrier moment" that could come near the end of the quarter, which is just three weeks away. An "Un-Carrier moment" is the name given to new and disruptive customer-friendly policies that T-Mobile has introduced over the years. These items include free talk, text, and 2G data in foreign countries, as well as "Binge On" unlimited low-res streaming, and the inclusion of all taxes and fees in customer bills. 

A safe pick in a storm

For those looking for safe havens amid the coronavirus scare and commodity rout, going with a subscription-based, low-cost provider of essential consumer mobility services seems like one of the better choices today. And with a transformative merger making for a potentially much stronger competitor coming out the other side of this crisis, there could be plenty of upside for shareholders over the long term as well.

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Stocks Mentioned

Sprint Corporation Stock Quote
Sprint Corporation
T-Mobile US, Inc. Stock Quote
T-Mobile US, Inc.
$132.96 (-0.05%) $0.07
DISH Network Corporation Stock Quote
DISH Network Corporation
$17.91 (-1.21%) $0.22
Verizon Communications Inc. Stock Quote
Verizon Communications Inc.
$50.57 (0.22%) $0.11
AT&T Inc. Stock Quote
AT&T Inc.
$20.64 (0.17%) $0.04
SoftBank Group Corp. Stock Quote
SoftBank Group Corp.
$19.45 (-0.41%) $0.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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