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TDS (TDS) Up 19.3% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Telephone & Data Systems (TDS - Free Report) . Shares have added about 19.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Telephone and Data Systems Q3 Earnings Top Estimates

Telephone and Data Systems reported healthy third-quarter 2018 results, primarily driven by U.S. Cellular’s increased revenues and profitability. Both the top line and the bottom line surpassed the respective Zacks Consensus Estimate in the quarter.

Net Income

Net income came in at $46 million or 41 cents per share against a loss of $181 million or loss of $1.64 per share in the year-ago quarter primarily due to lower total operating expenses. The bottom line beat the Zacks Consensus Estimate by 15 cents.

Revenues

Quarterly total operating revenues were $1,297 million compared with $1,251 million in the prior-year quarter. The top line surpassed the consensus estimate of $1,288 million.

U.S. Cellular

Operating revenues from U.S. Cellular division were $1,001 million, up 3.9% year over year. Total operating expenses decreased 26.9% to $967 million. Operating income was $34 million against a loss of $360 million in the year-ago quarter mainly due to lower operating expenses.

TDS Telecom

Operating revenues were $234 million, up 1.7% year over year primarily driven by strong increases in broadband connections. Revenues from wireline were $177 million, down 1.1% year over year due to lower ILEC sale as the company refocused to pursue commercial fiber. Cable revenues were $58 million, reflecting an increase of 11.5%, primarily driven by growth in residential connections.

Cash Flow and Liquidity

In the first nine months of 2018, Telephone and Data Systems generated $812 million of cash from operating activities compared with $621 million in the year-ago period. Free cash flow (non-GAAP) for the first three quarters of the year totaled $365 million compared with $223 million in the prior-year period.

As of Sep 30, 2018, the company had $1,062 million as cash and cash equivalents with $2,422 million as net long-term debt.

Guidance

For full-year 2018, Telephone and Data Systems tweaked its earlier guidance. The company currently expects total operating revenues in the range of $5,080-$5,180 million compared with the earlier guidance of $5,055-$5,205 million. Adjusted EBITDA is projected to be $1,220-$1,325 million compared with the earlier guidance of $1,145-$1,275 million, while capital expenditure is estimated to be $770 million, down from the previous range of $790-$840 million. The company projects adjusted OIBDA in the range of $1,045-$1,125 million compared with the earlier guidance of $985-$1,115 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 170% due to these changes.

VGM Scores

At this time, 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 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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