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U.S. Cellular Raised to Hold on Solid Prospects, Risks Stay

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On Nov 14, United States Cellular Corp. (USM - Free Report) – a subsidiary of Telephone & Data Systems Inc. (TDS - Free Report) – was upgraded by a notch to Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Prospects

U.S. Cellular has planned its strategic moves to accelerate subscriber addition and arrest churn. These strategies include the 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 is also striving to gain customers from rivals through online promotional plans and offering of discounts and unlimited contract buyout on smartphones.  The company is also focused on improving cost and profitability by managing data delivery cost and has introduced equipment installment plans.

U.S. Cellular is optimistic about the growing demand for smartphones, which enjoy significant market penetration, supporting growth in data revenues. For 2016, the company expects total operating revenue in the range of $3.9–$4.1 billion. This reflects the company’s expectation for modest customer growth, additional demand for data and a continued migration through equipment installment plans along with a very competitive pricing environment. Notably, equipment sales were up 38% to $239 million in the third quarter and are expected to continue to grow.

Moreover, the launch of its Shared Connect plans which offer more data, larger allotments and new tools to track data usage coupled with unlimited offerings in relation to calling and texting should help it sustain in the wireless market.

The Risks

U.S. Cellular exited the third quarter with cash and cash equivalents of $674 million compared with $715 million at the end of 2015. At third-quarter end, total debt was $1,621 million versus $1,629 million at the end of 2015. The debt-to-capitalization ratio at the end of the reported quarter was 0.23, flat with the 2015-end figure. Although the figures suggest sufficient liquidity, the resources might be inadequate for future expansion initiatives such as the purchase of spectrum license. This might lead to high levels of borrowing and the company’s liquidity would be affected if it is unable to obtain short or long-term financing on acceptable terms, further pressurizing its cash flow.

U.S. Cellular operates in an intensely competitive wireless market and remains significantly challenged by lower-cost mobile service plans from competitors. On a regional level, the company competes with AT&T Inc. (T - Free Report) -owned Leap Wireless. Also, U.S. Cellular remains highly susceptible to aggressive pricing by larger rivals like Verizon Communications Inc. (VZ - Free Report) and T-Mobile US Inc. (TMUS - Free Report) .

Moreover, high costs associated with network integration and construction of cell sites, aggressive pricing by larger rivals, and the ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures are some of the near-term risks.

US CELLULAR Price and Consensus


US CELLULAR Price and Consensus | US CELLULAR Quote

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