Here's My Favorite Telecom Stock for 2023

Last year's telecom winner could make a repeat performance in 2023.

T-Mobile (TMUS 0.47%) saw its stock price climb over 20% last year, while AT&T (T 1.30%) shares remained roughly flat and Verizon (VZ 0.88%) stock fell over 24%. As we start 2023, T-Mobile looks like it could maintain that momentum, with the stock continuing to outperform its rivals.

Here's why T-Mobile is my favorite telecom stock for 2023.

Subscriber growth momentum

T-Mobile has started 2023 with great momentum in its subscriber growth.

The company released preliminary earnings results earlier this month, which show that it added 927,000 postpaid phone subscribers in the quarter. It claims this will top AT&T and Verizon for the quarter. T-Mobile has been battling AT&T and the cable companies for postpaid phone subscribers, while Verizon has mostly languished over the past year.

There's a strong case to be made that T-Mobile will be able to continue outpacing its competitors' growth in 2023. It's seeing a significant decline in its churn rate, which ought to continue trending downward as its 5G network improves and it attaches more services like home internet to customer accounts. Given the size of T-Mobile's subscriber base, a small decline in churn translates into hundreds of thousands of subscribers over the course of the year.

T-Mobile's also pushing toward its goal of 7 million to 8 million home internet subscribers by 2025. It's consistently adding over 500,000 net subscribers per quarter, putting it on pace to meet its goal. The service helps T-Mobile in two ways: It produces additional revenue with low marginal expenses, and it helps attract and retain customers.

Home internet is just one of the ways T-Mobile is increasing revenue per account. It's also seeing many of its new customers choose its higher-priced Magenta MAX plan over lower-cost options. Meanwhile, it's offering incentives for customers to switch to more expensive plans. It's a stark contrast to AT&T and Verizon, which both pushed through price hikes last year, disgruntling customers and leading to increased churn.

T-Mobile is coming into 2023 with strong momentum in attracting and retaining customers, and I expect it to lead the market in net subscriber additions for the year.

Network advantage

One of T-Mobile's biggest advantages in wireless is its 5G network.

T-Mobile is about a year and a half ahead of both AT&T and Verizon in its 5G network build-out, and it expects to cover 300 million people by the end of the year. It's using low-band spectrum to quickly increase coverage on its network, and mid-band spectrum to support higher speeds. It's also increasing the ability to handle a ton of traffic in more densely populated areas by combining various bands of spectrum.

Those factors should give T-Mobile's network a distinct advantage in coverage, speed, and reliability, improving customer satisfaction and giving it a clear distinction over the competition. As long as T-Mobile can continue to execute and get the message to consumers, it should be rewarded financially.

Share buyback plans

T-Mobile has plans for a massive share buyback, and it already started in late 2022.

The company authorized a $14 billion buyback last September, and its plans to buy back a total of $60 billion worth of shares over the next few years remain intact. That $14 billion represents a substantial share of its market capitalization, especially when you factor in Deutsche Telekom's 50% stake in the company. The German company said it doesn't plan to sell into the buyback program.

The repurchase authorization presents a major support of the stock price. And T-Mobile should have the cash flow to support such a big repurchase program. Its merger-related expenses are behind it, which will help add billions to its annual free cash flow. On top of that, the pace of spending on its network buildout is slowing, which could result in lower capital expenditures compared to 2022. Combine those factors with a growing customer base paying more per month, and it's a recipe for a significant jump in free cash flow.

Meanwhile, heavy promotions at AT&T and a lack of subscriber growth at Verizon weigh on free cash flow growth for T-Mobile's rivals. That puts T-Mobile in a relatively strong position to make acquisitions, shore up its spectrum portfolio, or return capital to shareholders, while still showing strong growth for investors.

Even after T-Mobile's share price ran up in 2022, the stock still looks attractive, and it's my favorite telecom stock in 2023.