TDS Hits New 52-Week High on Encouraging Growth Dynamics

Shares of Telephone and Data Systems, Inc. TDS scaled a new 52-week high of $31.50 during yesterday’s trading session, before closing a tad lower at $31.19, for a healthy one-year return of 10.3%.

Growth Drivers

Telephone and Data Systems has been increasingly focusing on business services, like cloud-based back-up services and managed IP connections. Notably, the company’s managed IP connections have continued to increase over the past few quarters. Moreover, its personal cloud service — younited by F-Secure — has boosted the market share, as well as helped the company expand cloud services beyond the conventional enterprise market in the retail segment. The company also plans to purchase and build out a cloud TV platform, which is expected to be launched in the second half of 2019 across its wireline and cable markets.

The company is looking for lucrative opportunities to bring more fiber, in order to better address services, both in its current footprint and adjacent areas. By leveraging on fiber, Telephone and Data Systems is trying to respond to customers' growing TV and broadband service demand. Currently, it is making significant investments to increase fiber deployment in the existing markets and overbuilding in the newer ones. All these investments have strengthened the company’s fiber-based broadband networks. Such strategic moves highlight the company’s efforts to diversify its business model from a telecom service provider to fiber provider.

In addition, Telephone and Data Systems is experiencing stellar smartphone demand in its wireless wing — U.S. Cellular. The addition of Apple Inc. AAPL-manufactured iPhones and other branded mobile phones, such as Samsung Note series, has been driving the company’s revenues. We believe the long-term higher average revenue per user from smartphone users and full utilization of the LTE network capacity, backed by migration of customers from 3G to 4G networks, will mitigate the operating cost headwinds arising from higher subsidies on smartphones. Also, the device-instalment plan will likely offset losses from smartphone subsidies.

The company’s earnings estimate revision has been trending north for the past couple of months, highlighting bullish broker sentiment. The Zacks Consensus Estimate for 2018 earnings has moved up from 48 cents to 68 cents in the past 60 days, further strengthening its inherent growth potential.

With continued growth impetus and favorable growth dynamics, this Zacks Rank #2 (Buy) stock has the potential for further price appreciation and looks poised to touch new highs.

Stocks to Consider

Some other favorably-ranked stocks in the broader industry are Comtech Telecommunications Corp. CMTL and Ubiquiti Networks, Inc. UBNT, each sporting a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Comtech has trumped earnings estimates in each of the preceding four quarters, the average positive surprise being 136%.        

Ubiquiti has a long-term earnings growth expectation of 18.6%. It surpassed earnings estimates thrice in the last four quarters, the average positive surprise being 9%.

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