T-Mobile Didn't Waste a Second Buying Back Its Shares

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It's been a little over a month since T-Mobile (NASDAQ: TMUS) announced a $1.5 billion share repurchase program. In that time, management has already bought 7 million shares at an average price of $63.34 for a grand total of $444 million.

Let me remind you, the buyback authorization is good through the end of the year. At this rate, it won't last through the first quarter.

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Last month, CFO Braxton Carter predicted the authorization wouldn't make through the end of the year, noting the total authorization amount was very conservative. But he came out of the gates flying. The crazy thing is, this level of share repurchasing might not be uncommon within a couple of years.

T-Mobile is all about cash flow now

The T-Mobile growth story is over. It's now all about growing cash flow.

Maybe that's a bit of hyperbole. T-Mobile is certainly a growing business; it just posted its 19th straight quarter of over 1 million postpaid net additions.

T-Mobile invested tons of cash into buying new wireless spectrum licenses, deploying that spectrum into its network and opening new storefronts to service the new people covered by its improved network. A lot of that hard work is behind it, and the cash generated by its growing subscriber base is more than enough for it to continue investing in network improvements. As such, the company is now finally producing considerable free cash flow.

AT&T (NYSE: T) and Verizon (NYSE: VZ) show the possibilities of the free cash flow a large wireless network operator can generate. AT&T generated $12.8 billion through the first nine months of 2017, and Verizon generated about $6 billion. T-Mobile, by comparison, generated just $1.6 billion in the same period.

As T-Mobile scales its subscriber base, though, it should start to produce much more robust free cash flow. Management expects to produce a compound annual growth rate in free cash flow between 45% and 48% between 2016 and 2019. That would put it around $4.6 billion by next year.

Will T-Mobile reup?

After already going through nearly one-third of its authorization, T-Mobile will probably have to decide sooner rather than later whether it wants to increase its share buybacks. With considerable growth in free cash flow coming this year and next, it could certainly afford a much larger buyback program.

T-Mobile is also looking into mergers and acquisitions. The buyback was only announced after its merger talks with Sprint (NYSE: S) fell apart. If T-Mobile gets into serious acquisitions discussions, it could put a halt on its share repurchases. Management is even hopeful that a deal with Sprint could still get done at some point in the future, although it noted the synergies get worse as time goes on.

One thing that's definitely off the table, at least for now, is a dividend. "It's really not on the radar for the next several years," CFO Braxton Carter said at a recent investor conference.

So, if there are no further acquisition rumors surrounding T-Mobile in the next few months, investors should expect a bigger buyback in the second half of the year.

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Adam Levy owns shares of Verizon Communications. The Motley Fool owns shares of and recommends Verizon Communications. The Motley Fool recommends T-Mobile US. The Motley Fool has a disclosure policy.

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