For years, Deutsche Telekom's overseas activities were ridiculed as a problem. Many experts thought the subsidiary T-Mobile US had little chance of holding its own against the top dogs Verizon and AT&T. But the company became a powerful player on the U.S. market at the latest with the acquisition of its competitor Sprint in 2020. Suddenly, T-Mobile US had around 140 million customers, and with an aggregate of around 300 MHz of nationwide spectrum across all bandwidths, the company had almost twice as much as the two big mobile competitors AT&T and Verizon.
Deutsche Telekom CEO Tim Höttges brimmed with confidence at the April 1, 2020 launch: "The future starts now." And he was to be proven right, because while the market capitalization at the start of the merger was around USD 110 billion, today it is just under USD 180 billion. Things went up in sync with the operating business. In the second quarter alone, the number of contract customers grew by 1.7 million, more than at Verizon and AT&T combined. The Handelsblatt then described the good performance at the end of the first half of the year as a "surprising comeback story" and called the group a "stock market darling".
T-Mobile did not disappoint its fans in the third quarter. From July to September, the group added 854,000 users, over 100,000 more than expected. Above all, the strategy of keeping prices stable paid off. By comparison, AT&T was only able to win over 708,000 new subscribers, and Verizon, the largest U.S. provider, added just 8,000 customers in the same period. Unlike T-Mobile, the duo had opted for price increases and had to foot the bill. The German Telekom subsidiary, which is once again looking ahead with greater confidence in the wake of the figures, is quite different. Instead of 6.0 to 6.3 million, new customers are now expected to total 6.2 to 6.4 million for the full year.
According to analysts at DZ Bank, T-Mobile US is benefiting not only from price increases by its main competitors, but also from the attractiveness of a well-developed 5G mobile network. As a result, the institute expects robust customer growth in the coming quarters as well. The bank could be on the right track with this, as T-Mobile has just announced its 5G Internet rollout in the U.S. Midwest. In 70 cities and towns in Illinois, Michigan and Wisconsin, where millions still lack access to high-speed internet, more than 6 million households can now enjoy a 5G network.
Back to the numbers, which also have a small blemish. Third-quarter revenue, for example, fell slightly short of expectations at USD 19.5 billion. By contrast, earnings before interest, taxes, depreciation and amortization excluding leasing revenues (core Ebitda), adjusted for special effects, increased noticeably by around 11% to USD 6.7 billion. The good performance also encouraged T-Mobile CEO Mike Sievert to raise the Ebitda target for the full year. The manager is now expecting USD 26.2 to 26.4 billion; previously, he had targeted a range of USD 26.0 to 26.3 billion. This means that T-Mobile US also performed better than its competitors on the earnings side. AT&T's operating profit declined by 3%, while Verizon's was as much as 11% lower.
On the capital market, the differences on the operational side result in different price targets. While T-Mobile US marked a new record high after its interim report, Verizon dipped to an 11-year low. There are also clear differences on a one-year view. T-Mobile US shares are up 25% over this period, while Verizon is a quarter in the red. AT&T shares, meanwhile, turned in a zero performance over the past 12 months.
Despite the outperformance, the analyst consensus still sees the greatest potential in T-Mobile US stock. Among the "buy" rated stocks, the price target is USD 175, a potential of around one fifth. AT&T and Verizon are currently rated "hold" by the experts. The 12-month target for the former is 4.5% above the current price, and for Verizon it is 11%. However, T-Mobile US is not only receiving support from analysts, the company itself is also making a determined effort to buy its own shares. In September, the mobile communications giant announced a share buyback worth USD 14 billion, which is to run until September 2023.
Leonteq has two new softcallable barrier reverse convertibles on the market that can generate high yields even in a sideways move. The CHF-denominated single product on T-Mobile US offers an attractive yield of 7.00% p.a. with a maximum maturity of 18 months. On the downside, the BRC leaves plenty of room for the underlying. The barrier is fixed at 59% of the starting value. The identical product in the currency USD promises even a coupon payment of 11% p.a..
The Multi-BRC on AT&T, T-Mobile US and Verzion Communications also has a risk buffer of 41%. The yield opportunity, on the other hand, is higher. The quarterly coupon paid out on the CHF-denominated BRC amounts to 12% p.a.. All three products have a softcallable feature which becomes active for the first time after 6 months and can lead to an early redemption.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.