Shares from T-Mobile (TMUS 0.47%) rose 0.9% at the market open on Monday. The move comes on the next bearish day for the broader market when Nasdaq Composite Index down nearly 1% earlier this morning. Shares from Verizon Communications. and AT&T also traded more expensively.
The best telecom stocks have outperformed the market so far, with T-Mobile the only top performer to gain 19%. Here are a few reasons why T-Mobile may hold up well into 2023.
Last week, Morgan Stanley analyst Simon Flannery noted that telecom stocks should remain relatively resilient to macroeconomic headwinds. T-Mobile posted strong earnings in the second quarter and management raised guidance, which is quite rare for 2022.
Some stocks are more sensitive than others to the effects of rising interest rates and a strong US dollar. T-Mobile is not one of those. The company effectively implements hedging transactions to mute changes in currency and interest rates, so these factors did not affect the company’s cash flows in the first half of the year.
T-Mobile isn’t the cheapest stock on a price-to-earnings basis, but the market has rewarded the company for its excellent record of profitable growth and shareholder returns relative to industry peers. The company recently announced a $14 billion buyback authorization, which represents 8% of the company’s market capitalization.
T-Mobile is showing strong business results, and management is seeing active use of its Magenta MAX 5G wireless plan. This plan was launched in 2021. at the beginning and helps to increase the average deferred income from the account that in the first 2022 up 3% to $137.23 in the half.
While T-Mobile, like other telecom leaders, has a lot of debt on its balance sheet, the relative stability of its recurring revenue stream should give investors a good night’s sleep until the dust clears.
John Ballard has no positions in any of the stocks mentioned. The Motley Fool recommends T-Mobile US and Verizon Communications. The Motley Fool has a disclosure policy.