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U.S. Cellular (USM) Stock Up 14.5% in 6 Months: Here's Why

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Shares of United States Cellular Corporation USM have gained 14.5% in the past six months, significantly outperforming its industry’s decline of 8.4%. U.S. Cellular is the wireless subsidiary of Telephone & Data Systems Inc. TDS.



Catalysts Behind the Upsurge

Last month, U.S. Cellular reported better-than-expected earnings per share and revenues for fourth-quarter 2017. The metrics also improved on a year-over-year (y/y) basis. Growth was witnessed across all segments. Moreover, in the reported quarter, U.S. Cellular enjoyed a benefit of $269 million, due to the new tax law.

Further, the results were aided by an impressive number of subscriber addition and churn management. The company exited the reported quarter with a subscriber base of 5,096,000 (up 1.3% y/y) which includes 4,518,000 postpaid subscribers (up 0.8% y/y) and 519,000 prepaid subscribers (up 7.2% y/y).  As of December 2017, postpaid ARPU (average revenue per user) decreased to $44.12 from $45.19 at the end of 2016. Postpaid churn declined to 1.27% from 1.41% registered at the end of 2016. Prepaid churn decreased to 5.09% in the reported quarter from 5.44% at 2016-end.

We believe the company succeeded in adding subscribers and churn management on the back of strategic moves like introduction of a new billing system, continuous rollout of 4G LTE, enhancement of LTE handsets, completion of various spectrum transactions and monetization of non-strategic assets. The company’s focus on improving cost and profitability by managing data delivery cost also bode well.

Additionally, the growing demand for smartphones, which enjoy significant market penetration, acted as a tailwind. Meanwhile, U.S. Cellular is gearing up for 5G wireless network deployment. It has completed joint testing of various 5G use cases at 28GHz in partnership with Ericsson. U.S. Cellular has teamed up with Nokia to enhance the wireless experience for business customers. The company is also focused on various cost-cutting initiatives.

Estimate Revisions & Zacks Rank

Over the last 60 days, the Zacks Consensus Estimate of earnings for current quarter has soared 162.5% to 21 cents per share. The direction of estimate revisions serves as an important pointer when it comes to the price of a stock.

The upward estimate revisions along with the bullish Zacks Rank #1 (Strong Buy) reflect optimism over prospects of U.S. Cellular. You can see the complete list of today’s Zacks #1 Rank stocks here.

Other Stocks to Consider

Some other top-ranked stocks in the broader Computer and Technology sector include Harris Corporation HRS and Intel Corporation INTC. Both Harris and Intel carry a Zacks Rank of #2 (Buy).

The projected earnings growth rate (three to five years) for Harris and Intel are 6% and 8.4%, respectively.

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