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Telephone and Data Systems (TDS): Earnings Preview for Q1

Zacks Equity Research

Telephone and Data Systems Inc. TDS, a leading regional wireline voice and video service provider in the U.S., is slated to report first-quarter 2017 results on May 5, before the opening bell.

Last quarter, the company’s bottom line matched the Zacks Consensus Estimate. However, the company’s earnings lagged the Zacks Consensus Estimate in two of the previous four quarters, with an average negative surprise of 10.10%.

Let’s see how things are shaping up for this announcement.

Factors at Play

The price performance of Telephone & Data Systems looks depressing. Over the past three months, shares of Telephone & Data Systems registered a negative return of 6.2% compared with the Zacks-categorized Wireline - National  industry’s decline of 4.4%.

Telephone & Data Systemscontinues to compete with the likes of CenturyLink Inc. CTL and Frontier Communications Corp. FTR to name a few. Additionally, the company’s wireless division – United States Cellular Corp. USM – continues to operate in an intensely competitive wireless market and remains significantly challenged by the offering of service plans from lower-cost mobile operators.

We further believe that high costs associated with network integration and construction of new cell sites, aggressive equipment pricing, increasing capacity in existing cell sites, wireless technology upgrades and spectrum licensing will put considerable pressure on the company’s finances.

The company’s dismissal performance in certain metrics in the fourth quarter of 2016 was a major setback. We look forward to seeing whether these metrics perform better or worse in the to-be-reported quarter.

We appreciate Telephone and Data Systems’ efforts to reward its shareholders with a first-quarter 2017 dividend of 15.5 cents per Common Share and Series A Common Share. The dividend was paid on Mar 31, 2017, to shareholders of record as of Mar 17, 2017.

Moreover, Telephone & Data Systems continues to expand its business in the managed hosting and cloud service market through a new cloud-based storage service and managed IP connection. Also, Telephone and Data Systems’ flexible cash position and liquidity opens up scope for investments. The launch of Shared Data plans for consumers and businesses at nominal prices have helped the company gain consumers. We expect the trend to have continued in the first quarter. The rollout of IPTV also bodes well. Moreover, the company experienced strong smartphone demand at United States Cellular Corp.

The acquisition of InterLinx Communications LLC surely boosted the fiber-optics suite of the company.

Earnings Whispers

Our proven model does not conclusively show that Telephone and Data Systems is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.

Zacks ESP: Telephone and Data Systems has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at a loss of 1 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Telephone and Data Systems has a Zacks Rank #4.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Telephone and Data Systems, Inc. Price and EPS Surprise

 

Telephone and Data Systems, Inc. Price and EPS Surprise | Telephone and Data Systems, Inc. Quote

Key Pick

Here is a company in the Zacks categorized broader Utilities sector – which houses Telephone and Data Systems – that has the right combination of elements to post an earnings beat this quarter.

PPL Corporation PPL is expected to report first-quarter 2017 results on May 4. It has an Earnings ESP of +1.61% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

PPL Corp’s earnings surpassed the Zacks Consensus Estimate in three of the previous four quarters, with an average beat of 4.29%.

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PPL Corporation (PPL): Free Stock Analysis Report
 
Telephone and Data Systems, Inc. (TDS): Free Stock Analysis Report
 
CenturyLink, Inc. (CTL): Free Stock Analysis Report
 
Frontier Communications Corporation (FTR): Free Stock Analysis Report
 
United States Cellular Corporation (USM): Free Stock Analysis Report
 
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