What Will T-Mobile Do Post-Earnings?

With shares of T-Mobile (NASDAQ:TMUS) trading around $30, is TMUS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

T-Mobile offers mobile communications services under the T-Mobile brands in the United States, Puerto Rico, and the U.S. Virgin Islands. Its service offerings include postpaid and prepaid wireless voice, messaging and data services, mobile broadband, and wholesale wireless services.

T-Mobile on Tuesday reported fourth-quarter and full-year 2013 results demonstrating that its Un-carrier strategy is successfully delivering results. The company has aggressively focused on eliminating customer pain points and is delivering continued growth in its total and branded customer base through the successful execution of this strategy. T-Mobile reported more than 1.6 million total net customer additions with 981,000 total branded net customer additions for the quarter, including branded postpaid net additions of 869,000 and branded prepaid net additions of 112,000.

The strong branded postpaid net addition performance is the result of continued momentum in gross additions, which were up 15 percent quarter-over-quarter and 80 percent year-over-year, and the continuation of low branded postpaid churn, which was 1.7 percent in the quarter. For full-year 2013, on a pro forma combined basis, T-Mobile added more than 4.4 million total customers and more than 2 million branded postpaid customers.

“Our performance in the fourth quarter and the full year is clearly proving that we have our strategy right and that we are executing it well,” said John Legere, president and CEO of T-Mobile, in a press release. “Customers are fed up with the old ways and are voting in favor of choice, innovation and doing business with a company that cares about them and is willing to earn their business. For shareholders, we transformed the Company into a fierce, growing competitor that is changing the wireless industry and creating significant value.”

T = Technicals on the Stock Chart Are Strong

T-Mobile stock has been surging higher since its initial public offering. However, the stock is currently trading sideways and may need time to consolidate. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, T-Mobile is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

TMUS

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of T-Mobile options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

T-Mobile options

44.22%

33%

30%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of Tuesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on T-Mobile’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for T-Mobile look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

200%

N/A

N/A

-16.67%

Revenue Growth (Y-O-Y)

39.07%

N/A

27.45%

0.82%

Earnings Reaction

-2.85%*

-0.77%

4.12%

-0.78%

*As of this writing.

T-Mobile has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with T-Mobile’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has T-Mobile stock done relative to its peers – Verizon (NYSE:VZ), AT&T (NYSE:T), and Sprint (NYSE:S) — and sector?

T-Mobile

Verizon

AT&T

Sprint

Sector

Year-to-Date Return

14.11%

-0.18%

22.83%

13.06%

7.31%

T-Mobile has been a relative performance leader, year-to-date.

Conclusion

T-Mobile is attempting to revolutionize the communications industry by providing less restricted products and services to consumers and companies. The company on Tuesday reported fourth-quarter results that left investors pleased. The stock has been surging higher since its initial public offering but is currently trading sideways. Over the last four quarters, earnings and revenue figures have been on the rise. Relative to its peers and sector, T-Mobile has been a year-to-date performance leader. Look for T-Mobile to OUTPERFORM.

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