(Bloomberg) -- T-Mobile US Inc., the self-described rebel upstart of the wireless industry, is borrowing a page from the mature-company playbook by starting a $1.5 billion stock-repurchase program after merger efforts with Sprint Corp. collapsed.
The buyback program, the first in T-Mobile's history, is a milepost in a five-year turnaround plan focused on key areas like cash flow and the number of subscribers, company executives said at an investor conference Wednesday. Also, the stock had declined more than 9 percent from a June high of $68.32 as prospects of a Sprint deal faded, creating a buying opportunity.
“Our shares are undervalued,” Chief Financial Officer Braxton Carter said at the conference in New York.
T-Mobile, the third-largest U.S. wireless carrier, has been the fastest growing member of its peer group, fueled by offers like no-contract service plans and free Netflix. But the pace of market share gains is under pressure as larger rivals Verizon Communications Inc. and AT&T Inc. have responded with unlimited data plans aimed at people looking for cheaper ways to support their mobile video habits.
Deutsche Telekom AG, the controlling owner of T-Mobile, could add as much as 2 percent to its majority stake, Carter said.
T-Mobile gained 1.6 percent to $61.93 at 2:55 p.m. in New York.
“It clearly reflects management's confidence in their ability to grow free cash flow,” said Kevin Roe, an analyst with Roe Equity Research LLC. “It also reflects T-Mobile entering a lower revenue growth phase in a very mature U.S. mobile market.”
T-Mobile is aiming for a ratio of net debt to earnings before interest, taxes, depreciation and amortization of three to four times. As the company grows and its financial picture improves, investment-grade ratings should be within reach, Carter said. Standard & Poor's now rates the debt one level below at BB+.
--With assistance from Emma Orr
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net.
To contact the editors responsible for this story: Crayton Harrison at tharrison5@bloomberg.net, Bruce Rule, Rob Golum
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