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Should You Be Buying The T-Mobile Earnings Dip?

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T-Mobile US Inc TMUS delivered mixed results in Q1, beating consensus revenue estimates but missing on EPS. The market punished the stock with a 4.4 percent selloff in Tuesday’s session, but Citi analyst Michael Rollins believes the selling pressure is an overreaction.

Overall, Rollins believes that the positives for T-Mobile outweigh the negatives in the Q1 report.

“We remain a buyer of T-Mobile and believe the company’s playbook remains well-positioned in 2016 to generate better top-line performance, while generating in-line ‘cash’ OIBDA performance,” Rollins explained.

In terms of positives, Rollins highlighted increasing postpaid net adds guidance, declining postpaid and prepaid churn rates, “cash” phone average revenue per user stabilization, expanding OIBDA margins, rising prepaid and postpaid distribution and better prepaid net adds.

On the negative side, he mentioned greater-than-expected leasing in Q1 inflated headline OIBDA, free-cash-flow was weak and non-cash capital spend jumped significantly.

Overall, Citi remains bullish on T-Mobile and upped its price target for the Buy-rated stock from $44 to $47.

Rollins is impressed by T-Mobile’s 13 percent year-over-year (Y/Y) revenue growth compared to only a slight gain for AT&T Inc. T and a 6.0 percent decline for Verizon Communications Inc. VZ.

Despite the revenue growth, T-Mobile’s stock has severely lagged both Verizon and AT&T so far in 2016.

Disclosure: The author holds no position in the stocks mentioned.

Apr 2016BarclaysMaintainsOverweight
Apr 2016MacquarieInitiates Coverage onNeutral
Mar 2016BernsteinMaintainsMarket Perform

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