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TDS (TDS) Up 12.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Telephone & Data Systems (TDS). Shares have added about 12.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TDS due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Telephone and Data Systems Q4 Earnings Top Estimates

Telephone and Data Systems reported impressive fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.

Net Income

Net income in the December quarter was $14 million or 12 cents per share compared with $12 million or 10 cents per share in the year-ago quarter. Also, the bottom line beat the Zacks Consensus Estimate by 8 cents.

In 2020, net income was $226 million or $1.93 per share compared with $121 million or $1.03 per share in 2019.

Revenues

Quarterly total operating revenues increased 3% year over year to $1,376 million, driven by the U.S. Cellular and TDS Telecom businesses. Further, the top line beat the consensus estimate of $1,358 million.

In 2020, revenues inched up 1% year over year to $5,225 million.

Quarterly Segment Results

Revenues in U.S. Cellular grew 2% year over year to $1,073 million, primarily driven by higher average revenue per user (ARPU) as customers took higher-value services. Total operating expenses increased to $1,069 million from $1,055 million. Operating income improved to $4 million from a loss of $3 million in the year-ago quarter. Postpaid ARPU improved to $47.51 from $46.57, while average revenue per account rose to $124.87 from $120.99. Prepaid ARPU increased to $35.15 from $34.11 in the prior-year quarter.

Revenues in TDS Telecom were $248 million, up 5.5% year over year driven by considerable growth in residential customer connections. This reflects increased consumer demand for broadband services caused by the shift to remote work and learning. Revenues from wireline were $173 million, up 1.2%, mainly driven by accretive video connections with multiyear fiber footprint expansions. Cable revenues were $76 million, up 18.8% year over year. The upside was driven by significant growth through the Continuum acquisition and increase in broadband penetration.

Cash Flow & Liquidity

In 2020, Telephone and Data Systems generated $1,532 million of cash from operations compared with $1,016 million in 2019. Non-GAAP free cash flow totaled $194 million compared with $59 million a year ago.

As of Dec 31, 2020, the company had $1,429 million in cash and cash equivalents with $3,424 million of long-term debt. This compares with the respective tallies of $465 million and $2,316 million a year ago.

2021 Outlook

For 2021, the company expects total operating revenues in TDS Telecom in the range of $975-$1,025 million. Adjusted EBITDA is projected to be $290-$320 million. Adjusted OIBDA is anticipated to be $290-$320 million. Capital expenditures are estimated in the band of $425-$475 million.

For 2021, service revenues in U.S. Cellular are expected in the range of $3,025-$3,125 million. Adjusted EBITDA is projected to be $975-$1,125 million. Adjusted OIBDA is anticipated to be $800-$950 million. Capital expenditures are estimated in the band of $775-$875 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -9.28% due to these changes.

VGM Scores

At this time, TDS has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise TDS has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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