A month has gone by since the last earnings report for United States Cellular (USM). Shares have added about 8.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is U.S. Cellular due for a pullback? 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.
U.S. Cellular Q4 Earnings & Revenues Beat Estimates
U.S. Cellular reported healthy fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate. The wireless carrier continues its network modernization program and investments in 5G.
Net income in the December quarter was $5 million or 6 cents per share compared with $18 million or 20 cents per share in the year-ago quarter. The decline was due to higher interest and income tax expenses. The bottom line, however, beat the Zacks Consensus Estimate by a penny.
In 2020, net income was $229 million or $2.62 per share compared with $127 million or $1.44 per share in 2019.
Quarterly total operating revenues inched up 2% year over year to $1,073 million, which reflects growth in retail net additions alongside customer satisfaction. While service revenues jumped 1.7% to $776 million, equipment sales grew 2.8% to $297 million. Also, the top line surpassed the consensus estimate of $1,058 million.
In 2020, operating revenues remained almost flat year over year at $4,037 million.
Other Quarterly Details
Total operating expenses increased 1.3% year over year to $1,069 million. Operating income was $4 million against operating loss of $3 million in the prior-year quarter. Adjusted EBITDA came in at $222 million, while adjusted OIBDA was $178 million.
While total cell sites in service were 6,797 at the end of the quarter compared with 6,578 a year ago, the company-owned towers were 4,271, up from 4,166. As of Dec 31, 2020, postpaid average revenue per user (ARPU) increased to $47.51 from $46.57 year over year, and postpaid average revenue per account (ARPA) grew to $124.87 from $120.99. Postpaid churn declined to 1.21% from 1.38% reported in the year-ago quarter. Prepaid ARPU increased to $35.15 from $34.11, while prepaid churn fell to 4.24% from 4.40%.
Cash Flow & Liquidity
In 2020, U.S. Cellular generated $1,237 million of net cash from operations compared with $724 million in 2019. Non-GAAP free cash flow totaled $248 million compared with $74 million.
As of Dec 31, 2020, the company had $1,271 million in cash and cash equivalents with $2,489 million of long-term debt. This compares with the respective tallies of $285 million and $1,502 million a year ago.
U.S. Cellular is focused on market share expansion, accelerating business opportunities that use 5G and IoT. For 2021, the company expects service revenues in the band of $3,025-$3,125 million. Adjusted EBITDA is projected in the range of $975-$1,125 million. Adjusted OIBDA is anticipated in the band of $800-$950 million. Capital expenditures are estimated between $775 million and $875 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -6.11% due to these changes.
At this time, U.S. Cellular has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, U.S. Cellular has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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