Morningstar Equity Analyst Report | Report as of 07 Aug 2020 06:40, UTC | Page 1 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC Morningstar Pillars Analyst Quantitative Important Disclosure: Economic Moat None Narrow The conduct of Morningstar’s analysts is governed by Code of Ethics/Code of Conduct Policy, Personal Security Trading Policy (or an equivalent of), Valuation QQ Overvalued and Investment Research Policy. For information regarding conflicts of interest, please visit http://global.morningstar.com/equitydisclosures Uncertainty High Medium Financial Health — Moderate T-Mobile Posts Solid, if Messy, Q2 Results Amid the Pandemic and Sprint Source: Morningstar Equity Research Integration Quantitative Valuation TMUS Business Strategy and Outlook during the second quarter. The firm added 253,000 net USAi Michael Hodel, CFA, Analyst, 18 February 2020 postpaid phone customers during the quarter, somewhat Undervalued Fairly Valued Overvalued With the Sprint acquisition poised to close, we believe better than either Verizon or AT&T, but the carriers are T-Mobile is positioned to reach a sustainable place in the treating nonpaying customers who remain connected Current 5-Yr Avg Sector Country industry, where it is able to fund investments needed to under the FCC’s "Keep Americans Connected" pledge Price/Quant Fair Value 1.11 1.00 0.84 0.83 Price/Earnings 26.6 42.0 15.3 20.1 remain competitive while generating acceptable returns differently. Management’s outlook for the remainder of Forward P/E 38.2 — 14.6 13.9 on capital. The integration of the two businesses will take 2020 lines up reasonably well with our expectations, Price/Cash Flow 13.3 8.1 6.0 13.1 time, though, presenting potential bumps in the road. except for forecast net postpaid customer growth. It seems Price/Free Cash Flow — 302.4 15.6 19.5 the firm expects to retain more Sprint customers than we Trailing Dividend Yield% — — 4.22 2.35 Over the past five years, T-Mobile has expanded its had assumed, though it also wrote down the Sprint Source: Morningstar postpaid phone customer base nearly 60% while the rest customer base far more than we expected as part of Bulls Say of the industry has posted virtually no growth. The firm’s bringing the two firms’ accounting policies into alignment. OAfter five years of unprecedented success, T- relatively simple network architecture and spectrum At this point, we don’t expect to materially change our $89 Mobile has the wind at its back. The firm’s reputation holdings enabled it to upgrade to LTE technology fair value estimate and we view the shares as modestly with consumers is as strong as ever and its network efficiently and effectively while its innovative service overvalued. is delivering service that at least matches the other offerings and marketing have attracted customers from carriers. other carriers. Growing scale and support from parent The most striking figure in T-Mobile’s earnings release OAs T-Mobile takes share, including among Deutsche Telekom have enabled T-Mobile to invest in new was postpaid phone customer defections, which came in business customers, its finances will continue to assets, which it has done smartly, in our view. The firm at 0.80% per month. We estimate the combined improve. Free cash flow is already solidly positive, largely sat out the overhyped AWS-3 spectrum auction, Sprint/T-Mobile endured postpaid phone churn of about providing the ability to return capital to shareholders. for example, saving its resources to later acquire 1.2% a year ago. While the pandemic has caused customer low-frequency licences. This move has enabled T-Mobile activity to slow across carriers, the drop at T-Mobile is OThe Sprint merger promises to catapult T-Mobile to expand geographic coverage, improving service and impressive, placing the firm on par with AT&T despite the to the top of the industry, with ample scale to compete increasing its addressable market. inheritance of Sprint’s less loyal customers. However, and a spectrum portfolio no other carrier can match. T-Mobile only removed 90,000 nonpaying, but still Even with its enhanced scale, however, T-Mobile trails connected, customers from its base, about a quarter as Bears Say AT&T and Verizon by a wide margin: these rivals’ retail many as AT&T. Verizon appears to have kept all of these OT-Mobile is enjoying a brief moment in the sun as customers in its reported numbers, resulting a dramatic customer bases are roughly 30% and 55% larger, it milks the later stages of the 4G LTE technology reduction in monthly postpaid phone churn (0.58%). respectively. Given that T-Mobile generally prices its cycle. As the race to 5G heats up, the firm will need T-Mobile also may have benefited from the cleanup of services at a discount to its larger rivals, it has delivered to step up investments, pressuring cash flow, or fall Sprint’s customer numbers. The firm scrubbed about inferior returns on capital. Adding Sprint’s postpaid behind the industry leaders. 900,000 customers (1.3% of total) from its reported customer base (the prepaid business is being sold to Dish) OEven if 5G isn’t a big deal, T-Mobile’s network will figures. While we expect T-Mobile will build strong will leave the combined customer base slightly larger than eventually struggle under the weight of customer customer momentum over the coming quarters, we believe AT&T’s. Sprint’s customers are already the least loyal in growth, forcing it to invest more. Recent spectrum it’s premature to draw conclusions about how the the business, however, and have generally been highly purchases have enabled broader coverage, but customer base will look once the dust around the Sprint price sensitive. While T-Mobile’s recent track record is without adding much capacity. transaction fully settles. solid, retaining the bulk of Sprint customers as they OIf the Sprint deal fails, T-Mobile will be stuck as a transition to a new network could prove challenging, subscale, disadvantaged carrier. tempering our enthusiasm. Economic Moat Michael Hodel, Analyst, 21 February 2020 Analyst Note T-Mobile US operates at a cost disadvantage relative to Michael Hodel, CFA, Analyst, 07 August 2020 larger rivals Verizon and AT&T, in our view, a position that Though the Sprint integration and pandemic made for precludes us from awarding the firm a moat despite strong messy results, T-Mobile appears to have performed well efficient scale attributes in the wireless industry. The ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 2 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC Close Competitors Currency (Mil) Market Cap TTM Sales Operating Margin TTM/PE base more than $20 billion since the 2013 Metro merger, Verizon Communications Inc VZ USD 239,304 129,726 22.24 12.52 or about 60%, and we suspect that figure is understated somewhat due to heavy depreciation expense in recent AT&T Inc T USD 212,610 175,138 16.07 18.18 years. The increase in invested capital has nearly matching Comcast Corp CMCSA USD 195,834 105,549 19.03 17.21 the 70% increase in revenue during this period. However, increased scale has made T-Mobile far more efficient, firm’s cost position has improved markedly over the past turning it from a cash burner to substantial cash generator five years, but it doesn’t yet earn returns on capital that over the past five years, removing questions about its exceed our estimate of its cost of capital. We expect the viability. Sprint merger will go a long way toward solidifying T-Mobile’s position within a healthier industry structure, Although scale has improved dramatically, T-Mobile still but several potential developments could derail these trails Verizon and AT&T by a wide margin. In the postpaid efforts over the next decade, limiting our confidence. business, AT&T’s phone customer base remains nearly 60% larger. Verizon’s is more than twice as big. AT&T and T-Mobile’s turnaround over the past several years in Verizon also tend to serve higher-end customers, including among the most impressive we’ve seen in the global business accounts, meaning the revenue gap is even telecom industry. When the merger with MetroPCS closed larger. While a larger customer base does require in 2013, the firm’s network lagged Verizon's and AT&T's incremental investment in network capacity and overhead and its reputation with consumers was weak, leading to expenses, a significant portion of costs are either fixed or rapid customer losses. Since then, the firm has masterfully more efficiently absorbed as network utilization reaches integrated the two businesses, pursued additional optimal levels in more locations. For example, we estimate high-quality spectrum, and deployed new wireless that Verizon Wireless spends more on advertising than technologies. As a result, its network performance has T-Mobile but T-Mobile spends about 30% more on a improved dramatically, providing both better geographic per-customer basis. Sprint is even worse off, spending coverage and capacity, meeting a higher proportion of about 60% more per customer. Given that the companies customer needs in more places. Paired with network target roughly the same nationwide population, this improvements, the firm has marketed its services advantage is significant for the larger carriers. T-Mobile brilliantly, in our view, carving out a position in opposition and Sprint will also have the opportunity to cut to other providers as the "uncarrier." Unique service significantly from their combined advertising budget over offerings that remove perceived customer pain points the next several years. without dramatically changing the economics of the business have bolstered this market perception. From a network standpoint, we calculate that AT&T and Verizon actually spend more per retail customer on new Customer growth is the clearest evidence of T-Mobile’s equipment than T-Mobile. However, the larger carriers success. Since the end of 2013, the U.S. wireless industry operate their networks more efficiently day in and day out. has added about 22 million postpaid phone customers and While accounting differences exist, Verizon reports T-Mobile has captured about 85% of that growth, leaving network operating expenses equal to about 14% of rivals to trade share amongst themselves. The firm now services revenue versus about 19% at T-Mobile and nearly claims about 18% of the postpaid phone market, up from 30% at Sprint. T-Mobile and Sprint likewise have a huge 11% at the end of 2013. T-Mobile also expanded the opportunity to reduce network operating costs, but the MetroPCS prepaid brand across the country, increasing combined firm will inherit a complex web of tower leases, the size of this customer base by about one third. We radio frequency deployments, technology elements, estimate that T-Mobile’s total share of the retail wireless backhaul agreements, and customer bases accustomed to market, in terms of customers served, now stands at 20% their current service levels. Eliminating costs will require versus 13% at the end of 2013. a balancing act that will likely take several years to fully execute. We expect the combined company will continue While T-Mobile’s scale gains have been impressive, to earn returns on capital below its cost of capital for at they’ve come at a cost. Investments in spectrum and least the first two years after the merger. Until we have a network equipment have increased its invested capital sense of how well the merger is progressing, we won’t ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 3 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC consider moving T-Mobile to a narrow-moat rating. integration costs, then expanding to about 34% by 2024 as integration costs fade and savings roll in. While this The benefits of fixed-cost leverage and the difficulty of margin expansion may not seem impressive, we’ve providing a differentiated wireless offering create an assumed T-Mobile moves away from the phone leasing efficient scale advantage in the wireless industry. The model. Adjusted for this shift, we’ve assumed 9 massive consolidation across the industry over the past percentage points of margin expansion, with the firm 15 years and the inability of several interested parties, gaining network, marketing and overhead savings. including Dish Network and Comcast, to effectively enter the market provide evidence of efficient scale. We believe We expect heavy capital spending over the next three the attempt to merge T-Mobile and Sprint, nearly a decade years, hitting more than 20% of service revenue, to bring in the making, reflects both firms' belief that their only the two networks together. We then expect capital other option is to risk significant damage to the wireless spending to moderate, holding between $10 billion-$11 industry, through potentially semipermanent discounting, billion per year thereafter, similar to amounts Verizon has to gain the needed share to earn acceptable returns on reported in recent years. capital. We expect that combining Sprint and T-Mobile will leave the industry in a much healthier long-term Risk & Uncertainty position. Even if prices don’t rise materially as a result of Michael Hodel, Analyst, 21 February 2020 the merger, an industry with three rather than four major The largest uncertainty facing T-Mobile over the next players should operate more efficiently as customers stick cpuple of years will likely be the Sprint integration. with their carriers longer, all else equal. Combining two very large firms with vastly different cultures, different networks, and different approaches to Fair Value & Profit Drivers the network without alienating a significant number of Michael Hodel, Analyst, 21 February 2020 customers could prove very challenging. We are decreasing our fair value estimate to $89 per share from $91 based on the final terms of the T-Mobile deal T-Mobile also faces uncertainty around the pace of and our assumption that the merger will close shortly. We technological change. The development of 5G technology further assume that SoftBank has a 50% change of could force T-Mobile to invest far more aggressively than recouping the T-Mobile shares it will forfeit as a it currently plans or engineer its network in an inefficient concession to put a new merger agreement in place. manner, relying heavily on third parties for infrastructure. A challenging Sprint integration and accelerating shift to We expect the combined firm will generate about $75 dense 5G networks could quickly strain T-Mobile’s billion in revenue during 2020, down from $77 billion in resources. The combined firm will start life with nearly 2019, reflecting postpaid customer growth offset by the $70 billion in debt, which could limit flexibility to tackle sale of Sprint’s prepaid business to Dish. Beyond 2020, numerous initiatives at once. we assume that T-Mobile’s integration efforts are successful, with customer churn steadily declining from Advancing technology could also enable new firms to more the blended levels the combined firm has posted recently. easily enter the wireless market. The large cable We further assume that the firm is able to attract new companies have already deployed Wi-Fi networks customers, though with revenue per customer growing throughout their respective footprints, which 5G may only modestly due to T-Mobile’s promises to regulators nicely augment. In addition, the FCC plans to continue and competitive pressure. As a result, we forecast making more spectrum available for both licensed and wireless service revenue will grow about 4% annually unlicensed use. A flood of new spectrum available could through 2024. drive down prices, further easing entry into the wireless business. New competition could dramatically slow The combined firm will likely report relatively weak T-Mobile’s momentum in the market, causing it to fail to margins in 2020 as it ramps up integration efforts. We gain the scale needed to compete long term. peg the combined firm’s EBITDA margin at about 30% in 2019. Over the next couple years, We expect this margin Stewardship will dip into the mid- to upper-20% range including Michael Hodel, Analyst, 18 February 2020 ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 4 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC We rate T-Mobile’s stewardship as Standard. The firm has to COO from CMO and a seat on the T-Mobile board in showed good discipline on several occasions over the past 2018. Sievert has extensive technology and telecom five years, including its limited participation in the AWS-3 experience, previously spending time at Clearwire, AT&T spectrum auction and its pursuit of a merger with Sprint. Wireless, Microsoft, and a handful of startups. Sievert will Per the merger proxy, Sprint and its controlling continue to lead the combined T-Mobile/Sprint. shareholder Softbank demanded a valuation at least equal to the relative trading prices of the two companies’ shares After the deal closes, Deutsche Telekom will own 42% of throughout 2017. T-Mobile correctly asserted that Sprint’s the combined firm and have the right to vote Softbank’s share price reflected a significant takeover premium and 27% stake, giving the German company control. Minority chose to walk away from negotiations late in the year. investors will own 31% of the combined firm. Deutsche After a steady decline in Sprint’s share price, T-Mobile Telekom will appoint nine of the new firm’s 14 directors, was able to reach a far more favorable agreement in April who will be joined by CEO Legere. Softbank will appoint 2018. We suspect T-Mobile will push for an even more the remaining four directors, including Softbank chairman favorable deal with the original merger agreement Masayoshi Son. Hoettges will continue as the new firm’s allowed to expire in late 2019 and Sprint’s performance chairman. continuing to flag. We suspect Deutsche Telekom will be content to hold its Deutsche Telekom was the sole owner of T-Mobile USA, stake in T-Mobile. The firm negotiated for the right to vote the firm that merged with MetroPCS to create T-Mobile Softbank’s share, at least in part, so that it could continue US. The German carrier currently holds 63% of T-Mobile’s consolidating T-Mobile’s results in its own financial shares, a percentage that has slowly drifted lower as new statements. T-Mobile has been an important growth driver shares have been issued to employees, partially offset by for Deutsche Telekom recently. We wouldn’t be surprised buybacks in 2018. Deutsche Telekom clearly controls to see at least one more large, strategic move in the future, T-Mobile’s strategic direction, appointing the majority of though. Specifically, we think the firm would benefit from the firm’s 12 directors, with its CEO Timotheus Hoettges a presence in the fixed-line market. T-Mobile hired Sunit serving as chairman. Patel away from CenturyLink/Level 3 to head the Sprint integration effort. Given Patel’s background, a second act Deutsche Telekom is also T-Mobile’s largest creditor, integrating fixed-line assets would make sense. supplying more than half of the firm’s debt, excluding tower obligations. This position is a double-edge sword for minority shareholders, in our view. On the one hand, Deutsche Telekom’s financial support has enabled T-Mobile to maintain ready access to capital, providing the flexibility to pursue low-frequency spectrum needed to improve network coverage. On the other hand, Deutsche Telekom’s interests as a creditor might not always line up with those of shareholders. As T-Mobile’s financial condition has improved, however, this concern has diminished. The majority of T-Mobile’s executive ranks hail from the Deutsche Telekom/T-Mobile USA, including CEO John Legere, who plans to leave the top role at the end of April 2020. Legere was previously CEO of Global Crossing, a firm he led out of the telecom bubble more than a decade ago and then sold to Level 3 Communications in 2011. His personality permeates the firm’s culture. Michael Sievert, who has emerged as Legere’s second-in-command, will replace him as CEO. Sievert received a promotion in 2015 ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 5 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC Michael Hodel, Analyst, 11 February 2020 Analyst Notes Archive Judge Victor Marrero has sided with Sprint and T-Mobile in their battle with several states' attorneys general over T-Mobile Gains Share, Remains Confident in the the firms’ proposed merger. Assuming the states don’t Sprint Deal; Shares Fairly Valued appeal the verdict, the merger has now cleared all Michael Hodel, Analyst, 06 February 2020 significant legal and regulatory hurdles, allowing Sprint T-Mobile’s fourth-quarter results reflected the strong shareholders to breathe a huge sigh of relief. However, continued customer growth the firm previously disclosed. one glaring detail remains outstanding: the share Unsurprisingly, management also remains confident that exchange ratio. The original deal, which expired last year, the Sprint merger will ultimately win approval. Regarding called for Sprint shareholders to receive 0.103 T-Mobile the merger terms, which are potentially up for shares for each Sprint share. As of market close on Feb. renegotiation following expiration of the current 10, Sprint was trading at a value equal to 0.057 T-Mobile agreement late last year, T-Mobile indicated that any shares. With the initial moves in the shares following the change in the share exchange ratio would likely be judge’s ruling, that ratio stands at about 0.088, leaving hammered out quickly once the deal gains approval. Sprint shares nearly 15% below the original deal price. Management also introduced standalone 2020 expectations, calling for another year of strong customer Sprint’s fortunes have diverged significantly from growth, somewhat disappointing margin expansion, and T-Mobile’s in the nearly two years since the merger terms a modest, but still surprising, drop in network capital were originally struck. Sprint’s net debt load has increased spending. We don’t plan to materially change our T-Mobile by nearly $2 billion while T-Mobile’s has declined by $1.4 fair value estimate, leaving the shares roughly fairly billion. Accounting for this differential by transferring $3.4 valued. billion of value to T-Mobile shareholders would bring the exchange ratio down to around 0.90. More critically, Total revenue increased 3.8% during the quarter, with Sprint’s postpaid phone customer base is smaller than two wireless service revenue up a robust 6.3%, in line with years ago while T-Mobile’s is 18% larger, and the recent quarters. T-Mobile added 1 million postpaid trajectories of the two businesses remain starkly different. wireless phone customers during the quarter, down We expect Sprint will be compelled to accept a lower slightly versus a year ago. The firm’s portion of exchange ratio at or below the level current market prices industrywide postpaid customer growth has drifted imply. slightly lower over the past couple of quarters as Verizon and the cable firms have gotten more aggressive, but it For T-Mobile, cutting the exchange ratio to the current continues to take more share than any other carrier. market level would push our fair value estimate for the Revenue per postpaid phone customer declined a bit more firm, following the Sprint merger, up by about 5% to nearly than 1% year over year, worse than we’d expected. $90 per share. This value is also about 10% higher than However, revenue per postpaid account increased 2% our current standalone fair value estimate that assumes versus a year ago as customers continue to adopt new a 75% change of the deal closing (and which we will be data devices. increasing to reflect higher odds of the deal closing). Given T-Mobile’s negotiating leverage in this situation, we’d The reported EBITDA margin expanded one percentage much prefer to hold that firm’s shares over Sprint. point year over year to 25.3%, with solid cost control across all expense categories. Network operating Sprint Minority Shareholders Make Out Favorably expense was surprisingly low during the quarter; we As SoftBank Surrenders T-Mobile Shares expect this expense will ratchet higher as the firm adds Michael Hodel, Analyst, 21 February 2020 more sites to its network over time. We expect slowing SoftBank and Deutsche Telekom have reached an odd new customer growth, especially relative to T-Mobile’s size, agreement in the merger of T-Mobile and Sprint. We will more than offset this pressure, however. expected T-Mobile and DT, its largest shareholder, to garner more favorable deal terms given Sprint’s struggles Sprint and T-Mobile Beat the States; Now We Need since the merger was first announced nearly two years a Price ago. Our previous fair value estimates for the two firms ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 6 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC assumed Sprint shareholders would receive 0.09 T-Mobile equates to about half of Sprint’s total debt load as of the shares for each Sprint share, down from the original 0.103 end of 2019, should allow T-Mobile to repay roughly $11 shares. Our assumption proved correct, sort of. billion of debt coming due through 2021 and simplify its capital structure. We continue to believe T-Mobile Sprint majority shareholder SoftBank will forfeit 48.8 warrants a no-moat rating, but we also believe the Sprint million T-Mobile shares after the merger closes, deal places it on a path to countering the scale effectively leaving the firm with 0.088 T-Mobile shares disadvantages it has faced versus AT&T and Verizon. The for each of its Sprint shares. Sprint minority shareholders shares are modestly undervalued relative to our $89 fair will continue to receive 0.103 T-Mobile shares. This value estimate, but we’d prefer other telecom names at combination moves the share exchange ratio, in total, current valuations, including Comcast and AT&T. down to 0.091, roughly in line with our assumption. However, SoftBank can reclaim the 48.8 million shares if T-Mobile Customer Growth Slips as Sprint T-Mobile’s stock price exceeds certain levels (essentially Integration Ramps; Shares Fairly Valued $150 per share) over the next roughly six years. It’s an Michael Hodel, Analyst, 07 May 2020 interesting structure: If T-Mobile struggles, at least the Soft customer growth marked T-Mobile’s first quarter of firm will have fewer shares outstanding down the road. 2020, its last without Sprint. The firm added 452,000 net If it is reasonably successful, generating high-single-digit postpaid phone customers, its slowest pace in seven stock returns over the next few years, SoftBank will skim years. With Sprint disclosing that it lost 348,000 postpaid off some of that success. phone customers during the quarter, the combined firm added 104,000, including 78,000 under Sprint’s prepaid The bottom line is that the new deal has value for T-Mobile brands. Management expects to add 0-150,000 net relative to the original agreement, but slightly less than postpaid customers (phones and data devices) as a we had assumed. We’ve lowered our fair value estimate combined company during the second quarter, down from to $89 from $91 as a result. Sprint minority shareholders, 1.2 million combined the year before. T-Mobile has a lot on the other hand, make out significantly better than we’d on its plate, closing and now integrating the Sprint merger assumed. Our Sprint fair value estimate moves to $9.10 while dealing with COVID-19, so we aren’t surprised to from $8.20. see a period of relative weakness. We don’t expect to materially change our $89 fair value estimate and we view T-Mobile Locks In Financing at Attractive Rates the shares as fairly valued. Michael Hodel, Analyst, 03 April 2020 The new T-Mobile wasted no time in obtaining permanent As with rivals AT&T and Verizon, T-Mobile saw customer financing for the Sprint transaction, agreeing to sell $19 defections (churn) decline versus a year ago as customer billion of senior secured bonds a day after the deal closed. activity slowed dramatically in March. Management cited The firm appears to have obtained attractive rates despite the firm’s position as a share gainer as a reason for the the massive size of the placement and the current market weakness in net customer additions—with fewer turmoil, with maturities ranging from 5 to 30 years. The customers changing carriers, it had fewer opportunities 10-year notes ($7 billion of the total) carry a coupon of to win new accounts. While perhaps true, T-Mobile also 3.875%, a spread of about 3.25 percentage points above won a smaller share of new customer decisions during the the 10-year Treasury rate. While T-Mobile has obtained quarter than it has in the past. While AT&T and Verizon more favorable spreads in the past, the absolute cost is added 2%-3% fewer gross postpaid phone customers than hard to beat. The firm’s last offering of 10-year senior a year ago, T-Mobile was down 9%. Postpaid phone gross notes in 2018 priced only 2.1 percentage points over additions across the industry were likely roughly flat year Treasuries but still carried a 4.75% coupon. The latest over year, with the three major cable companies taking offering also compares reasonably well to Verizon, which share. T-Mobile and Sprint were the most impacted this issued 10-year notes with a 3.15% coupon two weeks ago. quarter. T-Mobile also lost 128,000 net prepaid customers, its first quarterly loss since 2013. The debt offering takes financing uncertainty off the table, allowing T-Mobile to focus on the challenge of integrating Total service revenue increased 5.3% year over year, Sprint over the next couple of years. The issue size, which modestly slower than the 6.3% pace set in 2019, as ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 7 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC prepaid revenue declined slightly. The adjusted EBITDA margin expanded more than three percentage points year over year to 33%, a multiyear record thanks to strong cost control and lower customer acquisition costs. T-Mobile Posts Solid, if Messy, Q2 Results Amid the Pandemic and Sprint Integration Michael Hodel, Analyst, 07 August 2020 Though the Sprint integration and pandemic made for messy results, T-Mobile appears to have performed well during the second quarter. The firm added 253,000 net postpaid phone customers during the quarter, somewhat better than either Verizon or AT&T, but the carriers are treating nonpaying customers who remain connected under the FCC’s "Keep Americans Connected" pledge differently. Management’s outlook for the remainder of 2020 lines up reasonably well with our expectations, except for forecast net postpaid customer growth. It seems the firm expects to retain more Sprint customers than we had assumed, though it also wrote down the Sprint customer base far more than we expected as part of bringing the two firms’ accounting policies into alignment. At this point, we don’t expect to materially change our $89 fair value estimate and we view the shares as modestly overvalued. The most striking figure in T-Mobile’s earnings release was postpaid phone customer defections, which came in at 0.80% per month. We estimate the combined Sprint/T-Mobile endured postpaid phone churn of about 1.2% a year ago. While the pandemic has caused customer activity to slow across carriers, the drop at T-Mobile is impressive, placing the firm on par with AT&T despite the inheritance of Sprint’s less loyal customers. However, T-Mobile only removed 90,000 nonpaying, but still connected, customers from its base, about a quarter as many as AT&T. Verizon appears to have kept all of these customers in its reported numbers, resulting a dramatic reduction in monthly postpaid phone churn (0.58%). T-Mobile also may have benefited from the cleanup of Sprint’s customer numbers. The firm scrubbed about 900,000 customers (1.3% of total) from its reported figures. While we expect T-Mobile will build strong customer momentum over the coming quarters, we believe it’s premature to draw conclusions about how the customer base will look once the dust around the Sprint transaction fully settles. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Quantitative Equity Report | Release: 07 Aug 2020, 01:40 UTC | Reporting Currency: USD | Trading Currency: USD | Exchange:XNAS Page Page 8 of1 15 of 1 T-Mobile US Inc TMUS QQQ 07 Aug 2020 02:00 UTC Last Close Fair ValueQ Market Cap Sector Industry Country of Domicile 06 Aug 2020 07 Aug 2020 02:00 UTC 06 Aug 2020 108.10 97.12 136.0 Bil i Communication Services Telecom Services USA United States There is no one analyst in which a Quantitative Fair Value Estimate and Quantitative Star Rating are attributed to; however, Mr. Lee Davidson, Head of Quantitative Price vs. Quantitative Fair Value Research for Morningstar, Inc., is responsible for overseeing the methodology that 2016 2017 2018 2019 2020 2021 Quantitative Fair Value Estimate supports the quantitative fair value. As an employee of Morningstar, Inc., Mr. Total Return Davidson is guided by Morningstar, Inc.’s Code of Ethics and Personal Securities Trading Policy in carrying out his responsibilities. For information regarding Conflicts Sales/Share 150 of Interests, visit http://global.morningstar.com/equitydisclosures Forecast Range Forcasted Price 120 Dividend Company Profile Split Deutsche Telekom merged its T-Mobile USA unit with prepaid Momentum: Positive 90 specialist MetroPCS in 2013, creating T-Mobile US. Following Standard Deviation: 19.33 the merger, the firm provided nationwide service in major Liquidity: High 60 markets but spottier coverage elsewhere. T-Mobile has spent aggressively on low-frequency spectrum, well suited to broad 63.50 52-Wk 111.58 coverage, and has substantially expanded its geographic 30 footprint. This expansion, coupled with aggressive marketing 33.23 5-Yr 111.58 and innovative offerings, has produced rapid customer growth. 47.0 10.4 0.2 23.3 37.8 Total Return % The firm serves 40 million postpaid and 21 million prepaid 34.6 -11.0 5.2 -7.9 32.8 +/– Market (Morningstar US Index) Quantitative Scores Scores — — — — — Trailing Dividend Yield % All Rel Sector Rel Country — — — — — Forward Dividend Yield % Quantitative Moat Narrow 79 80 80 36.4 24.9 11.1 20.2 26.6 Price/Earnings Valuation Overvalued 7 11 10 1.4 1.4 1.3 1.5 2.1 Price/Revenue Quantitative Uncertainty Medium 100 100 100 Morningstar RatingQ Financial Health Moderate 79 54 79 QQQQQ QQQQ QQQ TMUS QQ USAi Q 2015 2016 2017 2018 2019 TTM Financials (Fiscal Year in Mil) Undervalued Fairly Valued Overvalued 32,053 37,242 40,604 43,310 44,998 45,031 Revenue Source: Morningstar Equity Research 8.4 16.2 9.0 6.7 3.9 0.1 % Change 2,278 3,071 4,653 5,309 5,722 5,785 Operating Income 160.3 34.8 51.5 14.1 7.8 1.1 % Change Valuation Sector Country Current 5-Yr Avg Median Median 733 1,460 4,536 2,888 3,468 3,511 Net Income Price/Quant Fair Value 1.11 1.00 0.84 0.83 5,414 6,135 7,962 3,899 6,824 7,049 Operating Cash Flow Price/Earnings 26.6 42.0 15.3 20.1 -6,659 -8,670 -11,065 -5,668 -7,358 -7,094 Capital Spending Forward P/E 38.2 — 14.6 13.9 -1,245 -2,535 -3,103 -1,769 -534 -45 Free Cash Flow Price/Cash Flow 13.3 8.1 6.0 13.1 -3.9 -6.8 -7.6 -4.1 -1.2 -0.1 % Sales Price/Free Cash Flow — 302.4 15.6 19.5 0.82 1.69 5.20 3.36 4.02 4.06 EPS Trailing Dividend Yield % — — 4.22 2.35 173.3 106.1 207.7 -35.4 19.6 1.0 % Change Price/Book 4.7 2.3 2.0 2.4 -3.05 -2.47 -4.53 2.96 -1.24 -0.05 Free Cash Flow/Share Price/Sales 2.1 1.2 1.3 2.4 — — — — — — Dividends/Share 19.86 21.60 23.59 28.65 32.41 23.39 Book Value/Share Profitability Sector Country 818 826 859 850 857 1,259 Shares Outstanding (Mil) Current 5-Yr Avg Median Median Profitability Return on Equity % 12.7 11.9 13.0 12.9 4.2 8.1 22.0 12.2 13.0 12.7 Return on Equity % Return on Assets % 4.1 3.7 4.8 5.2 1.1 2.2 6.6 4.0 4.4 4.1 Return on Assets % Revenue/Employee (K) 849.6 775.4 685.3 325.9 2.1 3.8 11.0 6.7 7.7 7.8 Net Margin % 0.54 0.58 0.60 0.61 0.56 0.53 Asset Turnover Financial Health Sector Country Current 5-Yr Avg Median Median 3.8 3.6 3.1 2.9 3.0 3.0 Financial Leverage Distance to Default 0.6 0.6 0.5 0.5 53.5 55.6 56.4 57.6 58.8 59.8 Gross Margin % Solvency Score 572.5 — 527.0 552.4 7.1 8.3 11.5 12.3 12.7 12.9 Operating Margin % Assets/Equity 3.0 3.3 1.9 1.7 20,484 21,832 12,121 26,706 10,958 22,946 Long-Term Debt Long-Term Debt/Equity 0.4 0.9 0.3 0.4 16,557 18,236 22,559 24,718 28,789 28,977 Total Equity 1.8 1.8 1.9 1.9 1.5 1.3 Fixed Asset Turns Growth Per Share Quarterly Revenue & EPS Revenue Growth Year On Year % 1-Year 3-Year 5-Year 10-Year Revenue (Mil) Mar Jun Sep Dec Total Revenue % 3.9 6.3 8.8 29.2 2020 11,113.0 — — — — Operating Income % 7.8 19.9 45.6 26.9 2019 11,080.0 10,979.0 11,061.0 11,878.0 44,998.0 2018 10,455.0 10,571.0 10,839.0 11,445.0 43,310.0 8.8 Earnings % 19.6 33.5 68.0 15.2 8.2 Dividends % — — — — 2017 9,613.0 10,213.0 10,019.0 10,759.0 40,604.0 6.4 6.0 Book Value % 15.6 15.0 11.6 10.0 Earnings Per Share () 3.9 3.5 3.8 Stock Total Return % 39.9 18.8 21.7 20.4 2020 1.10 — — — — 2.0 2019 1.06 1.09 1.01 0.87 4.02 0.3 2018 0.78 0.92 0.93 0.75 3.36 2018 2019 2020 2017 0.80 0.67 0.63 3.11 5.20 © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and ® opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore is not an offer to buy or sell a security; are not warranted to be correct, complete or accurate; and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, ß analyses or opinions or their use. The information herein may not be reproduced, in any manner without the prior written consent of Morningstar. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 9 of 15 Research Methodology for Valuing Companies Qualitative Equity Research Overview intangible assets, switching costs, network effect, cost Our model is divided into three distinct stages: At the heart of our valuation system is a detailed projection advantage, and efficient scale. of a company's future cash flows, resulting from our Stage I: Explicit Forecast analysts' research. Analysts create custom industry and Companies with a narrow moat are those we believe In this stage, which can last five to 10 years, analysts company assumptions to feed income statement, balance are more likely than not to achieve normalized excess make full financial statement forecasts, including items sheet, and capital investment assumptions into our globally returns for at least the next 10 years. Wide-moat such as revenue, profit margins, tax rates, changes in standardized, proprietary discounted cash flow, or DCF, companies are those in which we have very high working-capital accounts, and capital spending. Based modeling templates. We use scenario analysis, in-depth confidence that excess returns will remain for 10 years, on these projections, we calculate earnings before competitive advantage analysis, and a variety of other with excess returns more likely than not to remain for at interest, after taxes, or EBI, and the net new analytical tools to augment this process. We believe this least 20 years. The longer a firm generates economic investment, or NNI, to derive our annual free cash flow bottom-up, long-term, fundamentally based approach profits, the higher its intrinsic value. We believe low- forecast. allows our analysts to focus on long-term business drivers, quality no-moat companies will see their normalized which have the greatest valuation impact, rather than short- returns gravitate toward the firm's cost of capital more Stage II: Fade term market noise. quickly than companies with moats. The second stage of our model is the period it will take the company's return on new invested capital—the Morningstar's equity research group (“we," "our") believes To assess the direction of the underlying competitive return on capital of the next dollar invested ("RONIC")— that a company's intrinsic worth results from the future advantages, analysts perform ongoing assessments of to decline (or rise) to its cost of capital. During the Stage cash flows it can generate. The Morningstar Rating for the moat trend. A firm's moat trend is positive in cases II period, we use a formula to approximate cash flows in stocks identifies stocks trading at an uncertainty-adjusted where we think its sources of competitive advantage lieu of explicitly modeling the income statement, discount or premium to their intrinsic worth—or fair value are growing stronger; stable where we don't anticipate balance sheet, and cash flow statement as we do in estimate, in Morningstar terminology. Five-star stocks sell changes to competitive advantages over the next Stage I. The length of the second stage depends on the for the biggest risk-adjusted discount to their fair values several years; or negative when we see signs of strength of the company's economic moat. We forecast whereas 1-star stocks trade at premiums to their intrinsic deterioration. this period to last anywhere from one year (for worth. companies with no economic moat) to 10–15 years or All the moat and moat trend ratings undergo periodic more (for wide-moat companies). During this period, Four key components drive the Morningstar rating: (1) our review and any changes must be approved by the cash flows are forecast using four assumptions: an assessment of the firm's economic moat, (2) our estimate of Morningstar Economic Moat Committee, comprised of average growth rate for EBI over the period, a the stock's fair value, (3) our uncertainty around that fair senior members of Morningstar's equity research normalized investment rate, average return on new value estimate and (4) the current market price. This department. invested capital, or RONIC, and the number of years process ultimately culminates in our single-point star rating. until perpetuity, when excess returns cease. The 2. Estimated Fair Value investment rate and return on new invested capital 1. Economic Moat Combining our analysts' financial forecasts with the decline until the perpetuity stage is reached. In the case The concept of an economic moat plays a vital role not firm's economic moat helps us assess how long returns of firms that do not earn their cost of capital, we only in our qualitative assessment of a firm's long-term on invested capital are likely to exceed the firm's cost of assume marginal ROICs rise to the firm's cost of capital investment potential, but also in the actual calculation capital. Returns of firms with a wide economic moat (usually attributable to less reinvestment), and we may of our fair value estimates. An economic moat is a rating are assumed to fade to the perpetuity period over truncate the second stage. structural feature that allows a firm to sustain excess a longer period of time than the returns of narrow-moat profits over a long period of time. We define excess firms, and both will fade slower than no-moat firms, Stage III: Perpetuity economic profits as returns on invested capital (or ROIC) increasing our estimate of their intrinsic value. Once a company's marginal ROIC hits its cost of capital, over and above our estimate of a firm's cost of capital, we calculate a continuing value, using a standard or weighted average cost of capital (or WACC). Without perpetuity formula. At perpetuity, we assume that any a moat, profits are more susceptible to competition. We growth or decline or investment in the business neither have identified five sources of economic moats: creates nor destroys value and that any new investment provides a return in line with estimated WACC. Morningstar Research Methodology for Valuing Companies Because a dollar earned today is worth more than a dollar earned tomorrow, we discount our projections of cash flows in stages I, II, and III to arrive at a total present value of expected future cash flows. Because we are modeling free cash flow to the firm—representing cash available to provide a return to all capital providers—we discount future cash flows using the WACC, which is a weighted average of the costs of equity, debt, and preferred stock (and any other funding sources), using expected future proportionate long-term market-value weights. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 10 of 15 Research Methodology for Valuing Companies 3. Uncertainty Around That Fair Value Estimate Morningstar Equity Research Star Rating Methodology Morningstar's Uncertainty Rating captures a range of likely potential intrinsic values for a company and uses it to assign the margin of safety required before investing, which in turn explicitly drives our stock star rating system. The Uncertainty Rating represents the analysts' ability to bound the estimated value of the shares in a company around the fair value estimate, based on the characteristics of the business underlying the stock, including operating and financial leverage, sales sensitivity to the overall economy, product concentration, pricing power, and other company-specific factors. Analysts consider at least two scenarios in addition to their base case: a bull case and a bear case. Assumptions are chosen such that the analyst believes there is a 25% probability that the company will perform better than the bull case, and a 25% probability that the company will perform worse than the bear case. The distance between the bull and bear cases is an important indicator of the uncertainty underlying the fair value estimate. Our recommended margin of safety widens as our uncertainty of the estimated value of the equity increases. The more uncertain we are about the estimated value of the equity, the greater the discount we require relative to our estimate of the value of the firm before we would recommend the purchase of the Morningstar Star Rating for Stocks The Morningstar Star Ratings for stocks are defined below: shares. In addition, the uncertainty rating provides Once we determine the fair value estimate of a stock, we guidance in portfolio construction based on risk compare it with the stock's current market price on a daily QQQQQ We believe appreciation beyond a fair risk- tolerance. basis, and the star rating is automatically re-calculated at adjusted return is highly likely over a multiyear time frame. the market close on every day the market on which the The current market price represents an excessively Our uncertainty ratings for our qualitative analysis are stock is listed is open. pessimistic outlook, limiting downside risk and maximizing low, medium, high, very high, and extreme. Please note, there is no predefined distribution of stars. upside potential. That is, the percentage of stocks that earn 5 stars can × Low–margin of safety for 5-star rating is a 20% discount fluctuate daily, so the star ratings, in the aggregate, can QQQQ We believe appreciation beyond a fair risk- and for 1-star rating is 25% premium. serve as a gauge of the broader market's valuation. When adjusted return is likely. × Medium–margin of safety for 5-star rating is a 30% there are many 5-star stocks, the stock market as a whole is discount and for 1-star rating is 35% premium. more undervalued, in our opinion, than when very few QQQ Indicates our belief that investors are likely to × High–margin of safety for 5-star rating is a 40% discount companies garner our highest rating. receive a fair risk-adjusted return (approximately cost of and for 1-star rating is 55% premium. equity). × Very High–margin of safety for 5-star rating is a 50% We expect that if our base-case assumptions are true the discount and for 1-star rating is 75% premium. market price will converge on our fair value estimate over QQ We believe investors are likely to receive a less than × Extreme–margin of safety for 5-star rating is a 75% time, generally within three years (although it is impossible fair risk-adjusted return. discount and for 1-star rating is 300% premium. to predict the exact time frame in which market prices may adjust). Q Indicates a high probability of undesirable risk-adjusted 4. Market Price returns from the current market price over a multiyear time The market prices used in this analysis and noted in the Our star ratings are guideposts to a broad audience and frame, based on our analysis. The market is pricing in an report come from exchange on which the stock is listed, individuals must consider their own specific investment excessively optimistic outlook, limiting upside potential and which we believe is a reliable source. goals, risk tolerance, tax situation, time horizon, income leaving the investor exposed to Capital loss. needs, and complete investment portfolio, among other For more details about our methodology, please go to factors. https://shareholders.morningstar.com. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 11 of 15 Research Methodology for Valuing Companies Other Definitions quantitative report and the quantitative ratings, there is no Value Estimate, current market price, and the Quantitative one analyst in which a given report is attributed to; Uncertainty Rating. The rating is expressed as 1-Star, 2-Star, Last Price: Price of the stock as of the close of the market however, Mr. Lee Davidson, Head of Quantitative Research 3-Star, 4-Star, and 5-Star. of the last trading day before date of the report. for Morningstar, Inc., is responsible for overseeing the methodology that supports the quantitative equity ratings Q: the stock is overvalued with a reasonable margin of Stewardship Rating: Represents our assessment of used in this report. As an employee of Morningstar, Inc., safety. management's stewardship of shareholder capital, with Mr. Davidson is guided by Morningstar, Inc.'s Code of Ethics Log (Quant FVE/Price)<–1*Quantitative Uncertainty particular emphasis on capital allocation decisions. Analysts and Personal Securities Trading Policy in carrying out his consider companies' investment strategy and valuation, responsibilities. QQ: the stock is somewhat overvalued. financial leverage, dividend and share buyback policies, Log (Quant FVE/Price) between (–1*Quantitative execution, compensation, related party transactions, and Quantitative Equity Ratings Uncertainty, –0.5*Quantitative Uncertainty) accounting practices. Corporate governance practices are Morningstar's quantitative equity ratings consist of: only considered if they've had a demonstrated impact on (i) Quantitative Fair Value Estimate QQQ: the stock is approximately fairly valued. shareholder value. Analysts assign one of three ratings: (ii) Quantitative Star Rating Log (Quant FVE/Price) between (–0.5*Quantitative "Exemplary," "Standard," and "Poor." Analysts judge (iii) Quantitative Uncertainty Uncertainty, 0.5*Quantitative Uncertainty) stewardship from an equity holder's perspective. Ratings (iv) Quantitative Economic Moat are determined on an absolute basis. Most companies will (v) Quantitative Financial Health QQQQ: the stock is somewhat undervalued. receive a Standard rating, and this is the default rating in (collectively the "Quantitative Ratings"). Log (Quant FVE/Price) between (0.5*Quantitative the absence of evidence that managers have made Uncertainty, 1*Quantitative Uncertainty) exceptionally strong or poor capital allocation decisions. The Quantitative Ratings are calculated daily and derived from the analyst-driven ratings of a company's peers as QQQQQ: the stock is undervalued with a reasonable Quantitative Valuation: Using the below terms, intended to determined by statistical algorithms. Morningstar, Inc. margin of safety. Log (Quant FVE/Price) >1*Quantitative denote the relationship between the security's Last Price ("“Morningstar," "we," "our") calculates Quantitative Uncertainty and Morningstar's quantitative fair value estimate for that Ratings for companies whether it already provides analyst security. ratings and qualitative coverage. In some cases, the Quantitative Uncertainty: Intended to represent Quantitative Ratings may differ from the analyst ratings Morningstar's level of uncertainty about the accuracy of the × Undervalued: Last Price is below Morningstar's because a company's analyst-driven ratings can quantitative fair value estimate. Generally, the lower the quantitative fair value estimate. significantly differ from other companies in its peer group. quantitative Uncertainty, the narrower the potential range × Fairly Valued: Last Price is in line with Morningstar's of outcomes for that particular company. The rating is quantitative fair value estimate. Quantitative Fair Value Estimate: Intended to represent expressed as Low, Medium, High, Very High, and Extreme. × Overvalued: Last Price is above Morningstar's Morningstar's estimate of the per share dollar amount that quantitative fair value estimate. a company's equity is worth today. Morningstar calculates × Low: the interquartile range for possible fair values is less the quantitative fair value estimate using a statistical model than 10%. Risk Warning derived from the fair value estimate Morningstar's equity × Medium: the interquartile range for possible fair values is Please note that investments in securities are subject to analysts assign to companies. Please go to less than 15% but greater than 10%. market and other risks and there is no assurance or https://shareholders.morningstar.com for information about × High: the interquartile range for possible fair values is guarantee that the intended investment objectives will be fair value estimates Morningstar's equity analysts assign to less than 35% but greater than 15%. achieved. Past performance of a security may or may not be companies. × Very High: the interquartile range for possible fair values sustained in future and is no indication of future is less than 80% but greater than 35%. performance. A security investment return and an investor's Quantitative Economic Moat: Intended to describe the × Extreme: the interquartile range for possible fair values is principal value will fluctuate so that, when redeemed, an strength of a firm's competitive position. It is calculated greater than 80%. investor's shares may be worth more or less than their using an algorithm designed to predict the Economic Moat original cost. A security's current investment performance rating a Morningstar analyst would assign to the stock. The Quantitative Financial Health: Intended to reflect the may be lower or higher than the investment performance rating is expressed as Narrow, Wide, or None. probability that a firm will face financial distress in the near noted within the report. Morningstar's Uncertainty Rating future. The calculation uses a predictive model designed to serves as a useful data point with respect to sensitivity × Narrow: assigned when the probability of a stock anticipate when a company may default on its financial analysis of the assumptions used in our determining a fair receiving a "Wide Moat" rating by an analyst is greater obligations. The rating is expressed as Weak, Moderate, value price. than 70% but less than 99%. and Strong. × Wide: assigned when the probability of a stock receiving Quantitative Equity Reports Overview a "Wide Moat" rating by an analyst is greater than 99%. × Weak: assigned when Quantitative Financial Health <0.2 The quantitative report on equities consists of data, × None: assigned when the probability of an analyst × Moderate: assigned when Quantitative Financial Health statistics and quantitative equity ratings on equity receiving a "Wide Moat" rating by an analyst is less than is between 0.2 and 0.7 securities. Morningstar, Inc.'s quantitative equity ratings are 70%. × Strong: assigned when Quantitative Financial Health >0.7 forward looking and are generated by a statistical model that is based on Morningstar Inc.'s analyst-driven equity Quantitative Star Rating: Intended to be the summary ratings and quantitative statistics. Given the nature of the rating based on the combination of our Quantitative Fair ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 12 of 15 Research Methodology for Valuing Companies Other Definitions Last Close: Price of the stock as of the close of the market of the last trading day before date of the report. Quantitative Valuation: Using the below terms, intended to denote the relationship between the security's Last Price and Morningstar's quantitative fair value estimate for that security. × Undervalued: Last Price is below Morningstar's quantitative fair value estimate. × Fairly Valued: Last Price is in line with Morningstar's quantitative fair value estimate. × Overvalued: Last Price is above Morningstar's quantitative fair value estimate. This Report has not been made available to the issuer of the security prior to publication. Risk Warning Please note that investments in securities are subject to market and other risks and there is no assurance or guarantee that the intended investment objectives will be achieved. Past performance of a security may or may not be sustained in future and is no indication of future performance. A security investment return and an investor's principal value will fluctuate so that, when redeemed, an investor's shares may be worth more or less than their original cost. A security's current investment performance may be lower or higher than the investment performance noted within the report. The quantitative equity ratings are not statements of fact. Morningstar does not guarantee the completeness or accuracy of the assumptions or models used in determining the quantitative equity ratings. In addition, there is the risk that the price target will not be met due to such things as unforeseen changes in demand for the company's products, changes in management, technology, economic development, interest rate development, operating and/or material costs, competitive pressure, supervisory law, exchange rate, and tax rate. For investments in foreign markets there are further risks, generally based on exchange rate changes or changes in political and social conditions. A change in the fundamental factors underlying the quantitative equity ratings can mean that the valuation is subsequently no longer accurate. For more information about Morningstar's quantitative methodology, please visit http://global.morningstar.com/equitydisclosures. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Please see important disclosures at the end of this report. Morningstar Equity Analyst Report |Page 13 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC General Disclosure The analysis within this report is prepared by the person (s) noted in their capacity as an analyst for Morningstar’s equity research group. The equity research group consists of various Morningstar, Inc. subsidiaries (“Equity Research Group)”. In the United States, that subsidiary is Morningstar Research Services LLC, which is registered with and governed by the U.S. Securities and Exchange Commission. The opinions expressed within the report are given in good faith, are as of the date of the report and are subject to change without notice. Neither the analyst nor Equity Research Group commits themselves in advance to whether and in which intervals updates to the report are expected to be made. The written analysis and Morningstar Star Rating for stocks are statements the Report and are subject to change. While financial situation or particular needs of any specific of opinions; they are not statements of fact. Morningstar has obtained data, statistics and recipient. This publication is intended to provide information from sources it believes to be reliable, information to assist institutional investors in making The Equity Research Group believes its analysts make Morningstar does not perform an audit or seeks their own investment decisions, not to provide a reasonable effort to carefully research information independent verification of any of the data, statistics, investment advice to any specific investor. Therefore, contained in the analysis. The information on which the and information it receives. investments discussed and recommendations made analysis is based has been obtained from sources herein may not be suitable for all investors: recipients believed to be reliable such as, for example, the The quantitative equity ratings are not a market call, must exercise their own independent judgment as to company’s financial statements filed with a regulator, and do not replace the User or User’s clients from the suitability of such investments and recommendations company website, Bloomberg and any other the conducting their own due-diligence on the security. The in the light of their own investment objectives, relevant press sources. Only the information obtained quantitative equity rating is not a suitability experience, taxation status and financial position. from such sources is made available to the issuer who assessment; such assessments take into account may is the subject of the analysis, which is necessary to factors including a person’s investment objective, The information, data, analyses and opinions presented properly reconcile with the facts. Should this sharing of personal and financial situation, and risk tolerance all herein are not warranted to be accurate, correct, information result in considerable changes, a statement of which are factors the quantitative equity rating complete or timely. Unless otherwise provided in a of that fact will be noted within the report. While the statistical model does not and did not consider. separate agreement, neither Morningstar, Inc. or the Equity Research Group has obtained data, statistics and Equity Research Group represents that the report information from sources it believes to be reliable, Prices noted with the Report are the closing prices on contents meet all of the presentation and/or disclosure neither the Equity Research Group nor Morningstar, Inc. the last stock-market trading day before the publication standards applicable in the jurisdiction the recipient is performs an audit or seeks independent verification of date stated, unless another point in time is explicitly located. any of the data, statistics, and information it receives. stated. Except as otherwise required by law or provided for in General Quantitative Disclosure General Disclosure (applicable to both Quantitative a separate agreement, the analyst, Morningstar, Inc. The Quantitative Equity Report (“Report”) is derived and Qualitative Research) and the Equity Research Group and their officers, from data, statistics and information within Unless otherwise provided in a separate agreement, directors and employees shall not be responsible or Morningstar, Inc.’s database as of the date of the Report recipients accessing this report may only use it in the liable for any trading decisions, damages or other and is subject to change without notice. The Report is country in which the Morningstar distributor is based. losses resulting from, or related to, the information, for informational purposes only, intended for financial Unless stated otherwise, the original distributor of the data, analyses or opinions within the report. The Equity professionals and/or sophisticated investors (“Users”) report is Morningstar Research Services LLC, a U.S.A. Research Group encourages recipients of this report to and should not be the sole piece of information used by domiciled financial institution. read all relevant issue documents (e.g., prospectus) such Users or their clients in making an investment pertaining to the security concerned, including without decision. The quantitative equity ratings noted the This report is for informational purposes only and has limitation, information relevant to its investment Report are provided in good faith, are as of the date of no regard to the specific investment objectives, objectives, risks, and costs before making an ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 14 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC investment decision and when deemed necessary, to currently covers and provides written analysis on seek the advice of a legal, tax, and/or accounting • Neither Morningstar, Inc. or the Equity Research please contact your local Morningstar office. In professional. 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To determine if such is the case, please click interest policies is available from http://global.mornin- Limited. Morningstar Investment Adviser India Private http://msi.morningstar.com and http://mdi.morningstar.com. gstar.com/equitydisclosures. Also, please note analysts Limited is registered with the Securities and Exchange are subject to the CFA Institute’s Code of Ethics and Board of India (Registration number INA000001357) • Analysts' compensation is derived from Morningstar, Standards of Professional Conduct. and provides investment advice and research. Inc.'s overall earnings and consists of salary, bonus and Morningstar Investment Adviser India Private Limited in some cases restricted stock. For a list of securities which the Equity Research Group has not been the subject of any disciplinary action by ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Morningstar Equity Analyst Report |Page 15 of 15 T-Mobile US Inc TMUS (XNAS) Morningstar Rating Last Price Fair Value Estimate Price/Fair Value Trailing Dividend Yield % Forward Dividend Yield % Market Cap (Bil) Industry Stewardship QQ 108.10 USD 89.00 USD 1.21 — 0.00 136.05 Telecom Services Standard 06 Aug 2020 06 Aug 2020 21 Feb 2020 06 Aug 2020 06 Aug 2020 06 Aug 2020 21:46, UTC 15:29, UTC SEBI or any other legal/regulatory body. Morningstar Investment Adviser India Private Limited is a wholly owned subsidiary of Morningstar Investment Management LLC. In India, Morningstar Investment Adviser India Private Limited has one associate, Morningstar India Private Limited, which provides data related services, financial data analysis and software development. The Research Analyst has not served as an officer, director or employee of the fund company within the last 12 months, nor has it or its associates engaged in market making activity for the fund company. *The Conflicts of Interest disclosure above also applies to relatives and associates of Manager Research Analysts in India # The Conflicts of Interest disclosure above also applies to associates of Manager Research Analysts in India. The terms and conditions on which Morningstar Investment Adviser India Private Limited offers Investment Research to clients, varies from client to client, and are detailed in the respective client agreement. For recipients in Japan: The Report is distributed by Ibbotson Associates Japan, Inc., which is regulated by Financial Services Agency. Neither Ibbotson Associates Japan, Inc., nor its representatives, are acting or will be deemed to be acting as an investment advisor to any recipients of this information. For recipients in Singapore: This Report is distributed by Morningstar Investment Adviser Singapore Pte Limited, which is licensed by the Monetary Authority of Singapore to provide financial advisory services in Singapore. Investors should consult a financial adviser regarding the suitability of any investment product, taking into account their specific investment objectives, financial situation or particular needs, before making any investment decisions. ? © Morningstar 2020. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. The information, data, analyses and opinions presented herein do not constitute investment advice; are provided solely for informational purposes and therefore are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. The opinions expressed are as of the date written and are subject to change without notice. Except as otherwise required by law, Morningstar shall not be responsible for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses or opinions or their use. The information contained herein is the proprietary property of Morningstar and may not be reproduced, in whole or in part, or used in any manner, without the prior written consent of Morningstar. Investment research is produced and issued by subsidiaries of Morningstar, Inc. including, but not limited to, Morningstar Research Services LLC, registered with and governed by the U.S. Securities and Exchange Commission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
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