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U.S. Cellular (USM) Down 7.2% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for United States Cellular (USM - Free Report) . Shares have lost about 7.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is U.S. Cellular due for a breakout? 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 catalysts.

United States Cellular Q1 Earnings Beat, Revenues Miss

United States Cellular reported decent first-quarter 2019 financial results, wherein both revenues and earnings increased year over year.

Net Income

On a GAAP basis, net income for the quarter was $54 million or 62 cents per share compared with $45 million or 52 cents per share in the year-ago quarter, driven by higher total investment and other income. The bottom line beat the Zacks Consensus Estimate by 16 cents.

Revenues

Quarterly total operating revenues increased 2.5% year over year to $966 million on the back of higher service revenues and equipment sales. The top line, however, lagged the consensus estimate of $983 million.

While revenues from Service increased 2.3% year over year to $741 million, the same from Equipment sales were up 3.2% to $225 million driven by sales growth in higher-priced devices and accessories.

Other Details

Total operating expenses were up 2.9% year over year to $902 million. Operating income was $64 million compared with $65 million in the prior-year quarter.

Operating Metrics

While total cell sites in service were 6,537 at the end of the reported quarter compared with 6,473 a year ago, company-owned towers were 4,106 compared with 4,099.

As of Mar 31, 2019, postpaid ARPU (average revenue per user) increased to $45.44 from $44.34, postpaid ARPA (average revenue per account) was $118.84 compared with $118.22. Postpaid churn rose to 1.26% from 1.23% a year ago. Prepaid ARPU increased to $33.44 from $31.78 and prepaid churn decreased to 4.92% from 5.27%.

Cash Flow and Liquidity

During first-quarter 2019, U.S. Cellular generated $287 million of net cash from operations compared with $188 million in the year-ago quarter. During the same period, the company’s non-GAAP free cash flow totaled $180 million compared with $112 million in the prior-year quarter.

As of Mar 31, 2019, the wireless telecommunications service provider had $648 million in cash and equivalents with $1,601 million of net long-term debt.

2019 Guidance

Backed by a solid start to 2019 with improved customer results, U.S. Cellular provided estimates for full-year 2019. The company expects total operating revenues in the band of $4,000-$4,200 million. Adjusted EBITDA is projected in the range of $900-$1,050 million. The company anticipates adjusted OIBDA in the range of $725-$875 million. Capital expenditures are expected to be between $625 million and $725 million.

Going Forward

U.S. Cellular has taken major steps to accelerate subscriber additions and improve churn performance. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage.

Moreover, it is well positioned to support the investment required for network modernization, including deployment of 5G technology. The company continues strengthening its customer base, identifying new revenue streams while reducing expenses across the business.

In addition, it is expanding footprint across Sioux City, Iowa and Northern Wisconsin while adopting unlimited plans to enhance ARPU. It has made progress on strategic objectives, growing customer base by increasing handset connections and customer loyalty to boost revenues and profitability.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

Currently, U.S. Cellular has a great Growth Score of A, though it is lagging a lot on the Momentum Score 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, U.S. Cellular has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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