A Telecom Merger Frenzy Is Coming
Telecom investors should be gearing up for a potential wave of mergers and acquisitions in coming months. According to T-Mobile ( TMUS) CEO John Legere, a number of companies will likely be looking to make strategic deals, including T-Mobile.
Earlier in April, a Federal Communications Commission auction of U.S. government wireless airwaves that began last year finally came to a close. On Thursday, anti-collusion rules associated with the auction will expire, allowing participants to once again discuss potential deals.
[Read: Top M&A Targets in 2017.]
When Legere was asked about potential M&A deals this week on T-Mobile's first-quarter earnings call, he specifically mentioned Dish Network Corp. ( DISH), Sprint Corp. ( S) and Comcast Corp. ( CMCSA) as possible consolidation candidates.
"There are some players, who I'm not bashing, but they have been clear that they need to do something -- whether it be Dish or Sprint or I would submit Comcast or others -- they need to do something to complete their hand," Legere says.
Legere also says there is a general feeling of optimism at T-Mobile about the M&A environment under President Donald Trump.
"The inorganic and organic possibilities for the company are tremendous, and it's great to enter those kind of periods," he says. "We are interested in looking at some of the possibilities."
T-Mobile, Dish and Comcast were three of the most aggressive spectrum buyers in the recent auction, spending a combined $15.9 billion on air waves. Larger rivals AT&T ( T) and Verizon Communications ( VZ) opted not to make large purchases.
This week, T-Mobile reported first-quarter earnings per share of 80 cents on revenue of $9.61 billion. Earnings topped consensus Wall Street expectations of 35 cents per share, while revenue fell just short of consensus estimates of $9.67 billion. T-Mobile also raised the low end of its guidance range for 2017 branded postpaid net subscriber additions from 2.4 million to 2.8 million and the high end of its guidance from 3.4 million to 3.5 million.
Despite the strong quarter from T-Mobile, Baird analyst William Power maintains a cautious outlook given the stock's steep valuation and the unpredictability of M&A headlines.
[See: 7 of the Best Stocks to Buy in 2017.]
"We remain constructive on the strong operating results and improved financials, but with valuation above the industry and the stock likely to be driven increasingly by M&A, we are maintaining our Neutral rating," Power says.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
