On Sep 9, 2014, we updated our research report on wireless service provider United States Cellular Corporation (USM).
We expect U.S. Cellular to gain from LTE expansion and smartphone sale, which are likely to drive earnings going ahead. However, stiff competition and heavy subsidies on smartphones can affect margins. This Chicago-based company currently holds a Zacks Rank #3 (Hold).
U.S. Cellular has implemented several strategic actions, including introduction of a new billing system, expansion of distribution channels, continuous rollout of 4G LTE, enhancement of LTE handsets and closing of various spectrum transactions, which should accelerate growth in the near future.
With the introduction of the new billing system, the company has witnessed substantial branding power resulting in an improvement in churn rate. Investment in 4G LTE will allow the company to offer popular services like shared data plans and connected devices over a superfast network.
U.S. Cellular is optimistic about the growing demand for smartphones, which enjoys a market penetration of 55%, supporting growth in data revenues. To increase smartphone penetration, the company has also initiated Shared Data plans for consumers and businesses, starting at $40 per month, for which it is receiving healthy customer response. Additionally, the company is also focused on improving cost and profitability by managing data delivery cost and has also introduced appropriate equipmentinstallmentplans.
However, the company’s second quarter results were disappointing as the company continued to lose money and subscribers. Customer churn remains the primary concern in the U.S. Moreover, higher mix of smartphones and higher subsidies on 4G LTE devices will continue to increase the company’s expenses.
Meanwhile, U.S. Cellular’s high-margin roaming revenues remain under pressure due to lower voice usage and roaming rates. High costs associated with network integration and construction of new cell sites, increasing capacity in existing cell sites, upgrading wireless technology and spectrum licensing are also expected to put considerable pressure on the company’s margins.
Other Stocks
While we remain on the sidelines regarding USM at present, some Zacks Rank #1 (Strong Buy) stocks worth considering at the moment are Telefonica SA (TEF), China Mobile Limited (CHL) and West Corporation (WSTC).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment