US Cellular Up to Buy on Strategic Steps, Lower Churn

Zacks Investment Research raised United States Cellular Corporation (USM) by a notch to a Zacks Rank #2 (Buy) on Oct 7, 2014.

Why the Upgrade?

U.S. Cellular has implemented several strategic actions, including the 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 brand power improvement which has resulted in reduced customer churn. Meanwhile, 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 initiated shared data plans for consumers and businesses, starting at $40 per month.

Moreover, the company has started offering Apple Inc.’s (AAPL) iPhone 6 and its Plus version to subscribers. The company focuses on lowering costs and enhancing profitability by managing data delivery expenses and has also introduced appropriate equipment instalment plans.

The company’s second-quarter revenues of $957.8 million breezed past the Zacks Consensus Estimate of $924.0 million. The reported quarter’s retail billed ARPU (average revenue per user) increased to $53.36 from $50.60 in the year-ago quarter. Post-paid churn decreased to 1.7% from 2% in the quarter. Moreover, the company also achieved positive net postpaid additions in June and July, through strong growth in gross customer additions and improved churn rates.

Other Stocks to Consider

Other stocks worth considering in this sector are T-Mobile US, Inc. (TMUS) and Verizon Communications Inc. (VZ), both of which carry the same Zacks Rank as U.S. Cellular.