Shares of Telephone and Data Systems, Inc. TDS scaled a new 52-week high of $35.00 during yesterday’s trading session, before closing a tad lower at $33.76, for a healthy one-year return of 10.3%. This Zacks Rank #1 (Strong Buy) stock has the potential for further price appreciation and looks poised to touch new highs in the remainder of 2018 on the back of healthy growth dynamics.
Telephone and Data Systems reported solid third-quarter 2018 results, primarily driven by higher U.S. Cellular’s revenues and profitability. Both the top line and the bottom line surpassed the respective Zacks Consensus Estimate in the quarter. Net income came in at $46 million or 41 cents per share against a loss of $181 million or loss of $1.64 per share in the year-ago quarter primarily due to lower total operating expenses. The bottom line beat the Zacks Consensus Estimate by 15 cents. Quarterly total operating revenues were $1,297 million compared with $1,251 million in the prior-year quarter. The top line surpassed the consensus estimate of $1,288 million. (Read More: Telephone and Data Systems Q3 Earnings Top Estimates)
The company has been increasingly focusing on business services, like cloud-based back-up services and managed IP connections. Notably, its 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. It also plans to purchase and build a cloud TV platform, which is expected to be launched in the second half of 2019 across wireline and cable markets.
Telephone and Data Systems 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 its 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 estimates have been trending north for the past couple of months, highlighting bullish broker sentiment. The Zacks Consensus Estimate for 2018 earnings has doubled in the past year to 70 cents, further strengthening its inherent growth potential.
Other Stocks to Consider
Some other top-ranked stocks in the broader industry are Comtech Telecommunications Corp. CMTL and Ribbon Communications Inc. RBBN, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Comtech has a long-term earnings growth expectation of 5%. It trumped earnings estimates in each of the preceding four quarters, the average positive surprise being 136%.
Ribbon Communications has a long-term earnings growth expectation of 12%. It surpassed earnings estimates in each of the last four quarters, the average positive surprise being 180.2%.
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