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Why Is TDS (TDS) Down 7% Since Last Earnings Report?

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A month has gone by since the last earnings report for Telephone & Data Systems (TDS - Free Report) . Shares have lost about 7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TDS due for a breakout? 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 Q1 Earnings Beat, Revenues Up Y/Y

Telephone and Data Systems reported healthy first-quarter 2019 financial results with year-over-year increase in revenues and earnings.

Net Income

The parent of U.S. Cellular and TDS Telecom’s net income came in at $59 million or 50 cents per share compared with $39 million or 34 per share in the year-ago quarter, primarily driven by top-line growth. The bottom line beat the Zacks Consensus Estimate by 14 cents.

Revenues

Quarterly total operating revenues were $1,257 million compared with $1,225 million in the prior-year quarter, owing to U.S. Cellular’s improved customer results. The top line, however, lagged the consensus estimate of $1,273 million.

U.S. Cellular

By segments, operating revenues from U.S. Cellular were $966 million, up 2.5% year over year. Total operating expenses increased to $902 million from $877 million. Operating income was $64 million compared with $65 million in the year-ago quarter. Postpaid average revenue per user improved to $45.44 from $44.34, while average revenue per account grew to $118.84 from $118.22.

TDS Telecom

Operating revenues were $230 million, almost stable year over year, reflecting healthy traction in broadband connections. Revenues from wireline were $171 million, down 2.3% due to lower ILEC sale as the company focused to pursue commercial fiber. Cable revenues were $60 million, reflecting an increase of 9.1%, primarily driven by growth in residential connections.

Cash Flow and Liquidity

During the first quarter, Telephone and Data Systems generated $327 million of net cash from operating activities compared with $214 million in the year-ago period. Free cash flow (non-GAAP) for the same period totaled $172 million compared with $83 million in the prior-year period.

As of Mar 31, 2019, the company had $959 million in cash and equivalents with $2,414 million of net long-term debt.

Guidance

For full-year 2019, Telephone and Data Systems expects total operating revenues in the range of $5,125-$5,375 million. Adjusted EBITDA is projected to be $1,185-$1,365 million, while capital expenditure is estimated to be in the range of $940-$1,090 million. The company projects adjusted OIBDA in the band of $1,000-$1,180 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 5.81% due to these changes.

VGM Scores

At this time, TDS has a strong 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 A on the value side, putting it in the top 20% 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, TDS has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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