United States Cellular Corp (USM), a Zacks Rank #1 (Strong Buy), is the eighth largest wireless company in the United States, based on the aggregate number of customers in its consolidated markets. The company's development strategy is to operate controlling interests in cellular market licensees in areas adjacent to or in proximity to its other markets, thereby building clusters in operating markets.
Recent Earnings Uptick
On February 23rd, USM reported earnings where they easily beat both the Zacks consensus earnings and revenue estimates. The company posted significant gains in EPS, reporting $0.05 compared to -$0.07 in the year ago quarter, and revenues improved by +13%. The Q4 results marked the first time the company posted year over year gains in revenues in 2017 as the company saw price increases in one of its entry level plans, and its unlimited data plans. Further, USM realized an improvement in its device protection plans, and an increase of its customer base on installment plans. Also, management's cost cutting initiatives along with positive subscriber results aided the top line.
Looking forward, the company is expanding its Voice over LTE (VoLTE) coverage outside its current presence in Iowa and Wisconsin over the next couple of years. This is expected to help its high-margin roaming revenues. Further, the upcoming rollout of FirstNet is anticipated to improve revenues for the tower segment above the +5% growth seen in 2017.
According to Kenneth R. Meyers, President and CEO, " We made significant progress on the strategic imperatives we set for 2017. With the success of our Total Plans, which include an unlimited data option and no hidden fees, we were able to grow our customer base through the powerful combination of new customer additions and increased loyalty and customer engagement. Through a company-wide initiative to better align costs with our strategic imperatives, we were able to reduce expenses by some $100 million in 2017 and, importantly, identify and implement programs to generate additional savings in 2018 and beyond. This extensive attention on costs allowed us to offset a decline in revenues caused by competitive pricing pressures and generate a modest increase in profitability ."
Price and Earnings Consensus
USM's stock price has been very choppy over the past several years, but the recent cost cutting measures combined with increased prices in key areas has caused the stock price to rise as you can see in the graph below.
United States Cellular Corporation Price and Consensus
Over the past 30 days, earnings estimates have been positively revised for Q1 18, Q2 18, FY 18 and FY 19: Q1 18 jumped up from $0.08 to $0.21, Q2 18 rose from $0.13 to $0.20, FY 18 improved from $0.85 to $1.05, and FY 19 more than doubled from $0.39 to $0.79.
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