T-Mobile (TMUS) Takes Commanding Lead Over Rivals

T-Mobile US, Inc. (TMUS) has taken a commanding lead in the 5G wars, posting much stronger 2020 returns than rivals Verizon Communications Inc. (VZ) and AT&T Inc. (T). The numbers speak for themselves, with T-Mobile stock gaining a spectacular 67% so far in 2020, compared to a zero return for Verizon and a 25% loss for AT&T. Debt is the great divide between these blue chips, with T-Mobile boasting a much stronger balance sheet, despite the recent Sprint acquisition.

Key Takeaways

  • T-Mobile has posted much stronger returns than its telecom rivals.
  • The stock broke out to an all-time high after the telecom giant beat third quarter top- and bottom-line estimates.
  • Mixed technical signals could limit gains into 2021.

The stock rallied more than 5% to an all-time high on Nov. 6 after T-Mobile blew away third quarter 2020 top- and bottom-line estimates, posting a profit of $1.00 per share on a 74% year-over-year revenue increase to $19.27 billion. The company also raised free cash flow (FCF) guidance for the second half during the release, nearly doubling previous estimates. The uptrend has added to gains since that time, stretching toward the $130 level.

Analysts took the quarterly metrics in stride, changing few price targets or ratings, but hedge funds have just reported intense activity. The action looks equally divided at first glance, with funds run by Keith Meister, David Tepper, George Soros, and Raymond Dalio reducing or closing positions while those run by Stanley Druckenmiller, Andreas Halvorsen, and Warren Buffet opened or added to positions.

Wall Street consensus on T-Mobile remains highly bullish despite outsized share gains, with a "Strong Buy" rating based upon 14 "Buy" and 2 "Hold" recommendations. No analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $120 to a Street-high $155, while the stock is set to open Tuesday's session about $12 below the median target. This favorable placement could support a trip to $150 by year end.

Hedge funds are alternative investments using pooled funds that employ different strategies to earn active returns, or alpha, for their investors. Hedge funds may be aggressively managed or make use of derivatives and leverage in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).

T-Mobile Long-Term Chart (2007 – 2020)

Chart showing the share price performance of T-Mobile US, Inc. (TMUS)

The stock ended a multi-year downtrend in 2012 after testing the 2009 low and rallied above the prior decade's peak in 2015. It continued to post respectable gains into May 2017 when it topped out at $68.88 and entered a rectangular correction, with support in the mid-$50s. A 2018 breakout attempt failed, while a 2019 rally did the trick, generating a shallow uptrend that accelerated into the triple digits in February 2020, just before the pandemic struck with a vengeance.

The subsequent decline posted a 14-month low in March, giving way to a V-shaped recovery wave that completed a round trip into the first quarter high in May. The stock broke out in June and entered a stair-step advance that stalled near $118 in August. It failed an October breakout attempt but mounted that barrier in reaction to third quarter earnings and is trading above $130 in Tuesday's pre-market session.

The on-balance volume (OBV) accumulation-distribution indicator has lifted to a new high as well, but the bulk of fresh accumulation represents additional shares that were issued in June as part of the deal with Japan's Softbank Group Corp. (SFTBY). Meanwhile, the monthly stochastic oscillator is casting shade on an otherwise sunny technical outlook, engaged in a bearish cycle that predicts limited upside into year end.

A stochastic oscillator is a momentum indicator comparing a particular closing price of a security to a range of its prices over a certain period of time. The sensitivity of the oscillator to market movements is reducible by adjusting that time period or by taking a moving average of the result. It is used to generate overbought and oversold trading signals, utilizing a 0-100 bounded range of values.

The Bottom Line

T-Mobile US is now 5G's "best-in-class," outperforming blue-chip telecom rivals by a wide margin. 

Disclosure: At the time of publication, the author held shares of Verizon Communications in a family account but no positions in the other securities mentioned.

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