On Mar 28, we issued an updated research report on leading diversified telecom service provider Telephone & Data Systems Inc. TDS.
The company reported fourth-quarter 2015 adjusted loss per share of 7 cents, significantly narrower than the Zacks Consensus Estimate of a loss of.34 cents. However, the top line failed to surpass the same.
Telephone and Data Systems’ wireless wing United States Cellular Corp. USM is expected to record strong results on the back of increased handset offerings, shared data plans, equipment financing and LTE technology expansion.
Moreover, expansion in the rapidly growing managed hosting and cloud service market should boost profits. Recently, Telephone & Data Systems’ subsidiary, TDS Telecom, announced the launch of a cloud-based back-up service – TDS Backup Online – which offers data storage of up to 200 GB. Providing a new cloud-based storage service should aid TDS Telecom in arresting churn by creating an add-on revenue stream and also drawing new broadband customers.
We note that in Sep 2014, TDS Telecom introduced a personal cloud service – younited by F-Secure – which boosted the company’s market share and also helped the company expand cloud services in the retail segment, beyond the conventional enterprise market. Meanwhile, for full-year 2016, TDS Telecom projects total operating revenue in the range of $1,130–$1,180 million.
We are also encouraged by Telephone and Data Systems’ cash position and liquidity, which provide flexibility and scope for future investments. Further, the company is committed toward enhancing shareholders’ wealth by consistently paying dividends and buying back shares.
However, U.S. Cellular’s high-margin roaming revenues are under pressure owing to lower voice usage and roaming rates.
Further, high costs associated with network integration and construction of new cell sites, aggressive equipment pricing, increasing capacity in existing cell sites, wireless technology upgrades and spectrum licensing will put considerable pressure on the company’s finances.
Zacks Rank & Stocks to Consider
Telephone and Data Systems currently has a Zacks Rank #3 (Hold). Better-ranked stocks in this sector include CenturyLink, Inc. CTL and Windstream Holdings, Inc. WIN. While CenturyLink sports a Zacks Rank #1 (Strong Buy), Windstream Holdings carries a Zacks Rank #2 (Buy).
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