T-Mobile (TMUS) is the second largest mobile phone carrier in the US. The company has about 113mn customers and its network is covering 98% of the population. The acquisition of rival Sprint in 2020 bolstered its position vis-à-vis its two major rivals, Verizon and AT&T. The largest shareholder is Deutsche Telekom with a stake just over 50%.
The company benefits benefit from a stable credit outlook. Its strong operating results and solid track record of deleveraging, following the Sprint acquisition, are somewhat offset by a focus now on shareholder returns. FCF has grown significantly this year, reflecting better capex efficiency and impressive FCF conversion. This has been helped by the Sprint merger integration, which has been ahead of target with synergies forecast at the upper end of the USD 7.3–7.5bn range given.
Management has reduced leverage to 2.6x, in line with its mid-2x goal, which places it comfortably within the current rating but makes further deleveraging highly unlikely and economically unprofitable. Apart a dividend payment, the company also announced a new share buyback program of USD 15bn (through end-FY24), which is partly credit financed. Nonetheless, balance sheet and rating are supported by continued solid operating results whilst the recent move to give a specific leverage target of 2.5x by end FY24 demonstrates a commitment to a solid business strategy and management resilience.
T-Mobile US is a core name for income and risk averse medium to long-term investors.