TDS (TDS) Down 35.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Telephone & Data Systems (TDS). Shares have lost about 35.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is TDS due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Telephone and Data Systems Q4 Earnings Beat Estimates

Telephone and Data Systems reported healthy fourth-quarter 2019 results, wherein both the top and bottom line surpassed the Zacks Consensus Estimate. Significant progress in fiber markets, accretive subscriber base and expansion in international markets drove its performance.

Net Income

Net income of U.S. Cellular and TDS Telecom’s parent firm in the December quarter was $12 million or 10 cents per share compared with $16 million or 14 cents per share in the year-ago quarter. The year-over-year decline was primarily due to higher operating expenses. However, the bottom line surpassed the Zacks Consensus Estimate by 7 cents. In full-year 2019, net income came in at $121 million or $1.03 per share compared with $135 million or $1.17 per share in 2018.

Revenues

Quarterly total operating revenues rose 0.3% to $1,336 million from $1,332 million in the prior-year quarter, driven by higher revenues from U.S. Cellular and TDS Telecom. The top line beat the consensus estimate of $1,328 million. Full-year 2019 revenues rose 1.3% to $5,176 million from $5,109 million on the back of higher broadband penetration and multi-year investments in network modernization initiatives.

U.S. Cellular

By segments, operating revenues from U.S. Cellular remained almost flat at $1,052 million. Total operating expenses increased to $1,055 million from $1,048 million. Operating loss was $3 million against operating income of $3 million in the year-ago quarter. Postpaid average revenue per user improved to $46.57 from $45.58, while average revenue per account grew to $120.99 from $119.60. Prepaid average revenue per user improved to $34.11 from $32.80.

TDS Telecom

Operating revenues were $235 million, up 1.3% year over year, backed by augmented fiber footprint in international markets and higher cable revenues. Revenues from wireline were $171 million, down 1.2% due to decline in commercial and wholesale connections. Cable revenues were $64 million, up 6.7%, primarily driven by the acquisition of Continuum in North Carolina and growth in residential connections.

Cash Flow & Liquidity

In 2019, Telephone and Data Systems generated $1,016 million of net cash from operating activities, almost flat year over year. Free cash flow (non-GAAP) totaled $59 million compared with $241 million in 2018. As of Dec 31, 2019, the company had $465 million in cash and equivalents with $2,316 million of net long-term debt compared with respective tallies of $921 million and $2,418 million a year ago.

2020 Guidance

For full-year 2020, total operating revenues from TDS Telecom is expected in the range of $950-$1,000 million. Adjusted EBITDA is projected to be $290-$320 million and capital expenditure is estimated to be in the band of $300-$350 million. Adjusted OIBDA is anticipated to be $280-$310 million.

For full-year 2020, total operating revenues from U.S. Cellular is expected in the range of $3,000-$3,100 million. Adjusted EBITDA is projected to be $950-$1,075 million and capital expenditure is estimated to be in the band of $850-950 million. Adjusted OIBDA is anticipated to be $775-900 million.

With efficient operational strategies, TDS Telecom is currently focused on adopting cost saving initiatives, retail channel optimization, network infrastructure advancement and steady 5G developments with ample opportunities of recruitment and retention in tight labor markets. In addition, it aims to generate revenues from targeted promotions and improved device protection plans with accretive connections in fixed wireless, prepaid and postpaid services. U.S. Cellular will optimize its strength in network services to launch 5G services in two markets with its planned launches in Iowa and Wisconsin in the first quarter of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -6.48% due to these changes.

VGM Scores

Currently, TDS has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, TDS has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.