United States Cellular Corporation USM, a subsidiary of Telephone and Data Systems Inc. TDS, is slated to release its second-quarter 2015 results on Jul 31, before the opening bell.
Last quarter, the company delivered a mammoth 1200% positive earnings surprise. In fact, the company has delivered positive earnings surprises in three of the last four quarters, with an average beat of a massive 304.49%. Let’s see how things are shaping up ahead of this announcement.
Factors to be Considered This Quarter
U.S. Cellular is optimistic about the growing demand for smartphones, which enjoys significant market penetration, supporting growth in data revenues. In the first quarter of 2015, smartphone sales remained strong and represented 66.9% penetration among postpaid customers, up from 55.8% recorded in the year-ago quarter.
Notably, for 2015, the company expects total operating revenue in the range of $4.0–$4.2 billion. Moreover, U.S. Cellular has also decided to install over 600 4G LTE cell sites in 2015 which will expand its existing 4G LTE service in 10 states. Meanwhile, the company has also started offering LG Electronics' latest smartphone, G4.
We thus expect the company to benefit from its latest drive of LTE expansion and smartphone sales. Also, continued focus on subscriber base expansion and reduction of churn through various strategic initiatives should further boost the quarter’s performance. Moreover, the launch of equipment financing will likely offset subsidy headwinds to a large extent.
However, intensifying competition in the wireless market and the company’s increased capital expenditure due to its aggressive LTE network rollout plan may hamper profitability in the to-be-reported quarter. Also, U.S. Cellular’s high-margin roaming revenues continue to remain under pressure owing to lower voice usage and roaming rates.
Earnings Whispers
Our proven model does not conclusively show that U.S. Cellular is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below.
Zacks ESP: U.S. Cellular’s earnings ESP is 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are poised at 6 cents.
Zacks Rank: U.S. Cellular carries a Zacks Rank #3 which increases the predictive power of ESP. However, a 0.00% ESP makes surprise prediction difficult.
Note that Sell-rated stocks (Zacks Rank #4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some companies to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Ashford Hospitality Trust, Inc. AHT has an earnings ESP of +4.35% and a Zacks Rank #1.
The Walt Disney Company DIS, which has an earnings ESP of +2.16% and a Zacks Rank #3.
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