Shares of United States Cellular Corporation (USM Quick QuoteUSM - Free Report) have surged 113.7% year to date, backed by healthy traction in the wireless business. Earnings estimates for the current and next fiscal have increased a stellar 309.1% and 60.4%, respectively, since May 2023, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) stock appears primed for further appreciation. You can see the complete list of today’s Zacks #1 Rank stocks here.

Image Source: Zacks Investment Research

Growth Drivers

Headquartered in Chicago, IL, U.S. Cellular is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve the efficiency of government operations. It is a subsidiary of Telephone and Data Systems, Inc., a diversified telecom service provider offering wireless and wireline services.

U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology.

The company continues strengthening its customer base, identifying new revenue streams while reducing expenses across the business. It is expanding its footprint while adopting unlimited plans to enhance average revenue per user (ARPU). While 5G and network modernization programs are on track, the company is optimistic about the use of the millimeter wave spectrum for fixed wireless access and its potential to serve rural customers.

The wireless carrier has taken a number of actions that are likely to accelerate growth in the coming days. These include the introduction of a new billing system, the continuous rollout of 4G Long-Term Evolution (LTE), the enhancement of LTE handsets and the completion of various spectrum transactions.

U.S. Cellular is focused on improving cost and profitability by managing data delivery costs and has introduced equipment installment plans. U.S. Cellular has been expanding its 5G device offering for consumers and businesses. It aims to provide excellent customer service while ramping up business opportunities that use 5G and IoT.

U.S. Cellular is bullish about the growing demand for smartphones, which enjoys significant market penetration, supporting growth in data revenues. It anticipates healthy customer growth, additional demand for data and migration through equipment installment plans coupled with a competitive pricing environment. Equipment sales are expected to continue rising as the take rate for equipment installment plans increases. The company continues its network modernization program, adding capacity and speed while launching 5G services commercially and Voice over Long Term Evolution (VoLTE) in the remaining markets.

U.S. Cellular’s top line is benefiting from solid user engagement in its fixed wireless business and improvement in tower rental revenues. The geographical diversity and well-balanced presence across various major wireless carriers highlight the robustness of its tower rental portfolio. Management's efforts to enhance operational efficiency and drive cost optimization across its operations have significantly boosted profitability despite a very challenging competitive environment.

The company’s strategy to launch flat rate plans is enabling it to successfully navigate through the fierce competition in the U.S. wireless industry. These pricing plans are gaining considerable popularity among postpaid customers.

Other Key Picks

Comtech Telecommunications Corp. (CMTL Quick QuoteCMTL - Free Report) , carrying a Zacks Rank #2, is another solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.    

Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.

Arista Networks, Inc. (ANET Quick QuoteANET - Free Report) , carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 20.4% and delivered an earnings surprise of 12%, on average, in the trailing four quarters.

It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.

AudioCodes Ltd. (AUDC Quick QuoteAUDC - Free Report) is another Zacks Rank #2 stock. It has a long-term earnings growth expectation of 24.8% and delivered an earnings surprise of 14%, on average, in the trailing four quarters.

Headquartered in Lod, Israel, AudioCodes offers advanced communications software, products, and productivity solutions for the digital workplace. It provides a broad range of innovative products, solutions and services that are used by large multi-national enterprises and leading tier-1 operators around the world.