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TDS (TDS) Up 4.4% 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 4.4% in that time frame, underperforming 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 catalysts.

Telephone and Data Systems Tops Q1 Earnings Estimates

Telephone and Data Systems reported impressive first-quarter 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Accretive subscriber base and significant progress in fiber markets coupled with augmented footprint in international markets drove its performance.

Net Income

Net income of U.S. Cellular and TDS Telecom’s parent firm in the March quarter was $69 million or 59 cents per share compared with $59 million or 50 cents per share in the year-ago quarter. The improvement can be attributed to to lower income tax expenses. The bottom line surpassed the Zacks Consensus Estimate by 25 cents.

Revenues

Quarterly total operating revenues amounted to $1,261 million, flat year over year despite uncertainties triggered by the coronavirus pandemic. The top line beat the consensus estimate of $1,243 million.

U.S. Cellular

By segments, operating revenues from U.S. Cellular came in at $963 million compared with $966 million in the prior-year quarter. Total operating expenses increased to $913 million from $902 million. Operating income declined to $50 million from $64 million in the year-ago quarter due to higher depreciation and amortization expenses. Postpaid average revenue per user improved to $47.23 from $45.44, while average revenue per account rose to $122.92 from $118.84. Prepaid average revenue per user increased to $34.07 from $33.44 in the prior-year quarter.

TDS Telecom

Operating revenues were $240 million, up 4.3% year over year owing to augmented fiber footprint in international markets and higher cable revenues. Revenues from wireline were $169 million, down 1.2% due to decline in commercial connections. Cable revenues were $71 million, up 18.3% year over year. The upside was primarily driven by the acquisition of Continuum in North Carolina and growth in residential connections.

Cash Flow & Liquidity

During the first three months of 2020, Telephone and Data Systems generated $367 million of net cash from operating activities compared with $327 million in the year-ago period. Free cash flow (non-GAAP) utilization totaled $10 million in the quarter against free cash flow generation of $172 million in the prior-year period. As of Mar 31, the company had $421 million in cash and equivalents with $2,365 million of net long-term debt. Notably, TDS repurchased 378,197 shares for $6 million.

2020 Guidance Reiterated

Despite the uncertainties pertaining to the coronavirus pandemic, TDS Telecom have kept the guidance for full-year 2020 unchanged.

For 2020, total operating revenues from TDS Telecom is expected in the range of $950-$1,000 million. Adjusted EBITDA is projected to be $290-$320 million and capital expenditure is estimated in the band of $300-$350 million. Adjusted OIBDA is anticipated to be $280-$310 million.

With efficient operational strategies, TDS Telecom continues to maintain a strong balance sheet with conservative financing strategy. Despite the COVID-19 crisis, the company is currently focused on attracting new customers, adopting cost-saving initiatives, fiber fortification programs, network infrastructure advancement and steady 5G developments with robust demand for wired broadband services. Backed by disciplined cable acquisitions, TDS Telecom aims to generate substantial revenues with fiber deployment in out-of-territory expansion markets and rollout of new Cloud TV platform in its Cable and Wireline segments coupled with accretive connections in fixed wireless, prepaid and postpaid services.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 61.19% due to these changes.

VGM Scores

At this time, TDS has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, 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

TDS has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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