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Telephone and Data Systems (TDS) Up 11.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Telephone and Data Systems, Inc. (TDS - Free Report) . Shares have added about 11.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Telephone & Data Systems Tops Q1 Earnings and Revenues

Telephone & Data Systems Inc. reported strong financial results in the first quarter of 2017, wherein both the top line and bottom line outpaced the Zacks Consensus Estimate.

Revenues were up 1% year over year to $1,238 million in the reported quarter, slightly above the Zacks Consensus Estimate of $1,236.7 million. Operating expenses were $1,156 million, down 6% year over year. The company reported quarterly operating income was $37 million compared with $8 million in the year-ago quarter.

United States Cellular Division

The company’s wireless subsidiary United States Cellular Corp. reported first-quarter 2017 adjusted earnings per share of $0.18, better-than the Zacks Consensus Estimate of $0.11.

Quarterly total revenue of $936 million was down 3% year over year missing the Zacks Consensus Estimate of $958.9 million. Quarterly Service revenues decreased 3% to $746 million. Revenues from Equipment sales dropped 4% to $190 million.

Quarterly postpaid ARPU (average revenue per user) increased to $45.42 from $45.19 at the end of 2016. Postpaid ARPA (average revenue per account) was $121.88 compared with $120.67 at the end of 2016. Postpaid churn declined to 1.29% from 1.41% recorded at the end of 2016. Prepaid ARPU increased to $33.66 from $35.25 recorded at the end of 2016. Prepaid churn increased to 5.69% in the reported quarter from 5.44% at 2016-end.

United States Cellular exited the first quarter of 2017 with a subscriber base of 4,996,000 compared with 5,031,000 at the end of 2016. Postpaid subscriber base totaled 4,455,000 compared with 4,482,000 at 2016-end. Meanwhile, prepaid subscriber base totaled 480,000 compared with 484,000 at the end of 2016. In the reported quarter, United States Cellular lost a net of 27,000 postpaid subscribers compared with the addition of 45,000 in the year-ago quarter. The company lost 4,000 prepaid customers in the same quarter as opposed to a net gain of 12,000 users in the prior-year quarter.

TDS Division

In the reported quarter, total revenue came in at $299 million, up 6% year over year. Within the segment, revenues from the wireline segment came in at $179 million, up 3% year over year. Cable revenues were $49 million, up 10% year over year while HMS revenues increased 11% to $71 million.

Cash Flow

In the first quarter of 2017, Telephone & Data Systems generated $137 million of cash from operations compared with $243 million in the prior-year quarter. Quarterly free cash flow was $10 million against $87 million in the year-earlier quarter.

Liquidity

Telephone & Data Systems exited the first quarter of 2017 with cash and cash equivalents of $896 million compared with $900 million at the end of 2016. At the end of the reported quarter, total debt was $2,443 million as against $2,445 million at 2016-end. At the end of the first quarter of 2017, the debt-to-capitalization ratio stood at 0.34, flat with the 2016-end figure.

Subscriber Statistics

As of Mar 31, 2017, Telephone & Data Systems had 581,900 residential wireline connections compared with 585,800 in the year-ago quarter. Of the total, voice connections were 308,200, down 3.2%. Broadband Connections were 228,500, down 0.3%. IPTV connections were 45,200, up 18%. Quarterly total residential revenue per connection was $45.17 compared with $43.28 in the year-ago quarter.

The company exited the first quarter of 2017 with 325,500 commercial wireline connections, down 3.7% year over year. Of the total, voice connections were 154,000, down 8%. Broadband Connections were 21,200, down 3.6%. ManagedIP connections were 150,300, up 1.2%.

Total cable connections were 294,300, up 3.5% year over year. Of the total, Broadband Connections were 137,800, up 13.2%. Video connections were 97,600, down 6.7%. Voice connections were 59,000, up 1.5%.

Guidance for 2017

For 2017, Telephone & Data Systems projects total operating revenue in the range of $1,200–$1,250 million. Both operating cash flow and adjusted EBITDA are estimated in the band of $300–$340 million while capital expenditure is projected at around $225 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimate. There has been one revision higher for the current quarter. In the past month, the consensus estimate has shifted by 400% due to these changes.

VGM Scores

At this time, Telephone and Data Systems' stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with a 'D'. However, the stock was allocated a grade of 'B' on the value side, putting it in the second 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #1 (Strong Buy). We are expecting an above average return from the stock in the next few months.




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