For Immediate Release
Chicago, IL – November 14, 2012 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Telephone and Data Systems Inc. (TDS), United States Cellular Corporation (USM), Sprint Nextel Corp. (S), Liberty Global Inc. (LBTYA) and Virgin Media Inc. (VMED).
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Here are highlights from Tuesday’s Analyst Blog:
US Cellular, Sprint Strike a Deal
One of the premier wireless service providers and a subsidiary of Telephone and Data Systems Inc. (TDS), United States Cellular Corporation (USM), recently announced its $480 million deal with Sprint Nextel Corp. (S). The agreement entails the sale of U.S. Cellular’s Chicago, St. Louis, central Illinois and Midwest markets to Sprint subsidiaries.
In addition, the deal incorporates handover of personal communications service (PCS) spectrum and approximately 585,000 customers, accounting for about 10% of U.S. Cellular's customer base. The company expects the transactions to close by mid-2013, subject to completion of all regulatory approvals.
The bottom line of this deal will be having to resolve spectrum issues underlying LTE expansions taking place in both these companies. Spectrum constraint is the biggest challenge the wireless industry is currently facing. Therefore, any industry consolidation that takes place through merger acquisition or sale of assets as in the case of this deal has a lot to do with wireless spectrum.
As for Sprint, the agreement means more spectrum that will support its LTE coverage and services in key markets like Chicago and St. Louis. The company would receive 20 MHz of spectrum that would support its 1900 MHz band in Chicago and other markets, and 10 MHz of bandwidth in St. Louis market.
As part of the Network Vision strategy, the company launched LTE services initially in five major markets – Atlanta, Dallas, Houston, Kansas City and San Antonio – in mid-July. Sprint expects to add four more markets – Baltimore, Gainesville, Manhattan/Junction City and Sherman-Denison – before Labor Day. The LTE coverage is expected to reach more than 120 million people (or roughly half of its CDMA footprint) with a deployment of 12,000 sites by this year-end and more than 250 million customers with 22,000 cell sites by the next.
From the standpoint of U.S. Cellular, the deal would enable the company to seek its expansion plans in the LTE space.
In March this year, the company rolled out its first LTE services in Iowa, Wisconsin, Maine, North Carolina, Texas and Oklahoma. Further, it plans to cover an additional 3,600 cities by the second half of the year. Overall, the company expects approximately 58% of its subscriber base to be covered by 4G LTE by the end of this year.
U.S. Cellular completed a spectrum swap with Verizon Communications in September last year that provided U.S. Cellular with eighteen 700 MHz spectrum licenses covering eight states. Besides supporting infrastructure, the spectrum swap is expected to enhance network capacity along with improvement in voice and data services in existing markets.
The company expects the deal to streamline its operations and, thereby improve its profitably. Further, the sale would also entail an increased focus in more profitable markets for the company.
Although these developments would remain accretive to the company’s profitability over the long term, we believe heavy capital expenditures will remain detrimental to its financial position. Further, expenditures on network integration, competitive market, intense pricing and regulatory pressures may pose near-term threats for the company.
We recommend a long-term Outperform recommendation on U.S. Cellular. However, the stock carries a Zacks #3 Rank, implying a short-term (1-3 months) Hold rating.
Liberty Global Closes OneLink Buy
With the clearance of regulatory approval, LGI Broadband Operations, Inc. – the business arm of Liberty Global Inc. (LBTYA) completed the pending acquisition of OneLink Communications for a total consideration of about $585 million.
The completion of the deal will expand Liberty Global’s market share in Puerto Rico to 70%, hence making it one of the largest operators in the island. Subsequently, OneLink will be included with LGI’s existing business.
In the recent past, Liberty Global pursued a few major acquisitions, which resulted in some financial constraints for the company. Consequently, the company has joined forces with private investment group Searchlight Capital Partners, L.P. to buy full stake in OneLink Communications.
Liberty Global initiated its business restructuring from early 2010. At present, the company is concentrating primarily in Europe and Latin America while divesting operations in other parts of the world.
Germany is one of the major growth areas for Liberty Global, where it completed two major acquisitions. Liberty Global acquired UnityMedia GmbH and Kabel Baden-Wuerttemberg GmbH & Co. KG, the second and third largest cable TV companies in Germany, respectively. Recently, it is rumored that Liberty Global is planning to bid for Ziggo, the market leading cable operator in Netherlands. The acquisition of Ziggo would virtually place Liberty Global at the helm of the Dutch cable TV market.
Western Europe has become a lucrative market for cable operators. These markets are witnessing growing demand for pay-TV services together with triple-play bundled services that combines basic cable TV, Internet and telephony. In the forthcoming years, we believe Liberty Global’s revenue will continue to benefit from a "triple play" of video, broadband and telephone, as it signs up more “bundled” customers in Europe.
However, moving ahead, deteriorating European economy and stiff competition from Virgin Media Inc. (VMED) and others may act as headwinds for the company.We thus maintain our long-term Neutral recommendation on Liberty Global.
Currently, Liberty Global has a Zacks #2 Rank, implying a short-term Buy rating on the stock.
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