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Telephone and Data Systems Hits 52-Week High on Core Focus

Zacks Equity Research

Shares of Telephone and Data Systems, Inc. TDS scaled a new 52-week high of $36.58 in yesterday’s trading session, before closing a tad lower at $36.54. With continued growth impetus and core focus, this Zacks Rank #3 (Hold) stock is anticipated to touch new 52-week highs in 2019.

Factors at Play

While rising demand for faster broadband speeds and video connections continues to generate higher wireline residential revenue per connection, the company’s wireline segment is witnessing growth in revenues from fiber investments and through Federal A-CAM support.

Telephone and Data Systems is experiencing solid demand for smartphones at its wireless wing, United States Cellular Corporation USM. The addition of iPhones and other branded mobile phones, like the Samsung Note series, are driving revenues. We believe higher average revenue per user from smartphone users and full utilization of LTE network capacity, backed by migration of customers to 4G networks, will likely mitigate operating cost headwinds arising from higher subsidies on smartphones. To further increase smartphone penetration, the company has introduced shared data plans for consumers and businesses, starting at nominal prices per month. U.S. Cellular has lowered the cost of shared connect plans for customers who either bring their own device or opt for device instalment plans.

Moreover, Telephone and Data Systems has been increasingly focusing on business services like cloud-based back up services and managed IP connections. Notably, the managed IP connections are increasing, which is helping the company expand cloud services in the retail segment, beyond the conventional enterprise market. The company also plans to purchase and build a cloud TV platform, which is expected to be launched in the second half of 2019 across its 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, the telco is trying to respond to customers' growing TV and broadband service demand. The company is making investments to increase fiber deployments in both existing and new markets. 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 a fiber one.

Stocks to Consider

Better-ranked stocks in the broader industry include Telefônica Brasil S.A. VIV, sporting a Zacks Rank #1 (Strong Buy) and Telstra Corporation Limited TLSYY, carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.               

Telefônica Brasil has a long-term earnings growth expectation of 10.4%.

Telstra has a long-term earnings growth expectation of 3.7%.

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