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Why Is TDS (TDS) Up 16.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Telephone & Data Systems (TDS - Free Report) . Shares have added about 16.4% 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 its most recent earnings report in order to get a better handle on the important drivers.

Telephone and Data Systems Up on Q2 Earnings Beat

Telephone and Data Systems reported solid second-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Accretive subscriber base and broadband connections along with augmented footprint in international markets drove its performance despite lower store traffic stemming from the global pandemic.

Net Income

Net income in the June quarter was $65 million or 56 cents per share compared with $33 million or 28 cents per share in the year-ago quarter. The two-fold rise in earnings can be primarily attributed to lower operating expenses on the back of flat year over year revenues. The bottom line surpassed the Zacks Consensus Estimate by 32 cents.

Revenues

Quarterly total operating revenues aggregated $1,263 million, almost flat year over year despite uncertainties triggered by the coronavirus pandemic. The top line beat the consensus estimate of $1,204 million.

U.S. Cellular

By segments, operating revenues from U.S. Cellular were unchanged at $973 million, driven by higher demand of wireless products to meet the need for remote connectivity due to COVID-19 pandemic. Total operating expenses decreased to $920 million from $943 million due to lower expenses excluding depreciation and amortization. Operating income increased to $53 million from $30 million in the year-ago quarter. Postpaid average revenue per user improved to $46.24 from $45.90, while average revenue per account rose to $120.70 from $119.46. Prepaid average revenue per user increased to $34.89 from $34.43 in the prior-year quarter.

TDS Telecom

Operating revenues were $241 million, up 3.4% year over year primarily driven by higher cable revenues and augmented fiber footprint in international markets coupled with higher broadband connections. Revenues from wireline were $169 million, down 1.7% due to decline in commercial connections. Cable revenues were $71 million, up 14.5% year over year. The upside was primarily driven by the acquisition of Continuum in North Carolina and growth in residential connections.

Cash Flow & Liquidity

During the first six months of 2020, Telephone and Data Systems generated $806 million of net cash from operating activities compared with $592 million in the year-ago period. Free cash flow (non-GAAP) totaled $196 million in first half of the year compared with $199 million in the prior-year period. As of Jun 30, the company had $565 million in cash and equivalents with $2,487 million of net long-term debt. Notably, TDS repurchased 879,409 shares for $14 million in the first half of 2020.

2020 Guidance Reiterated

Despite uncertainties associated with the coronavirus pandemic, TDS Telecom and U.S. Cellular have kept the guidance for full-year 2020 unchanged. For 2020, total operating revenues from TDS Telecom is expected in the range of $950-$1,000 million. Adjusted EBITDA is projected to be $290-$320 million and capital expenditure is estimated in the band of $300-$350 million. Adjusted OIBDA is anticipated to be $280-$310 million.

For 2020, total service revenues from U.S. Cellular are expected in the range of $3,000-$3,100 million. Adjusted EBITDA is projected to be $900-$1,025 million and capital expenditure is estimated in the band of $850-$950 million. Adjusted OIBDA is anticipated to be $725-$850 million.

TDS Telecom continues to maintain a strong balance sheet with conservative financing strategy. Despite the lower store traffic owing to COVID-19 crisis, the company is currently focused on attracting new customers, adopting cost-saving initiatives, fiber fortification programs, network infrastructure advancement and steady 5G developments with robust demand for wired broadband services. With disciplined cable acquisitions, TDS Telecom aims to generate lucrative revenues with fiber deployment in out-of-territory expansion markets and rollout of TDS TV+, a Cloud TV platform, in its cable and wireline segments coupled with accretive connections in fixed wireless, prepaid and postpaid services.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 17.24% due to these changes.

VGM Scores

Currently, TDS has a strong Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 upward for the stock, and the magnitude of these revisions looks promising. Notably, TDS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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