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US Cellular Strong on Promising Factors: Should You Add?

On Jan 18, we issued an updated research report on wireless service provider United States Cellular Corp.USM - a subsidiary of Telephone and Data Systems Inc. TDS .

U.S. Cellular reported strong financial results in the third quarter of 2015 with both the top and the bottom line outpacing the Zacks Consensus Estimate. Notably, the company raised its full-year 2015 outlook for operating cash flow and adjusted EBITDA.

Meanwhile, over the last couple of years, U.S. Cellular has been divesting its non-strategic assets in order to focus on long-term growth opportunities. The company has also taken a number of strategic actions that will likely accelerate growth in the future, thus enhancing its returns.

The strategies include introduction of a new billing system, continuous rollout of 4G LTE, enhancement of LTE handsets and the completion of various spectrum transactions. Notably, U.S. Cellular has been incessantly focusing on improving cost and profitability by managing data delivery cost and introducing equipment installment plans.

The company duly completed its 4G LTE network rollout during the third quarter. This network carries about 83% of the company's data traffic. The company is also planning it trials for its Voice over LTE (VoLTE) in the upcoming quarter. We thus expect the company to benefit from its latest drive of LTE expansion and implementation of VoLTE services.

Meanwhile, the company is optimistic about the growing demand for smartphones, which enjoy significant market penetration, supporting growth in data revenues. Evidently, in third-quarter 2015, smartphone sales remained strong and represented 72% penetration among postpaid customers, up from 62% recorded in the year-ago quarter.

However, U.S. Cellular operates in an intensely competitive wireless market. Thus, in order to provide more value to its customers and to offer better plans than Verizon Communications Inc. VZ and AT&T, Inc. T , the company has decided to streamline its offerings and trim down the cost of its Shared Connect plans.

Moreover, U.S. Cellular recently launched a new promotional plan that provides its subscribers with unlimited talk and text, tethering and 6GB of data for only $40 a month. Moreover, for customers willing to switch over to its network, U.S. Cellular will offer an additional $150 promotional card. Customers opting to trade in a smartphone with the carrier will get another $150 as reward, which will take their share of the promotional offer to $300.

We believe, the offer is well-timed as it comes at a time when every other major wireless carrier is offering similar promotional offers, in a bid to poach rivals' subscribers.

U.S. Cellular currently holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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