USM - United States Cellular Q3: Decent Quarter But Stock Is Way Ahead

2023-11-06 22:39:40 ET

Summary

• United States Cellular Corporation reported Q3 revenue of $963 million, slightly below expectations while EPS beat by a wide margin.
• High debt and interest expenses continue to add pressure to a company that needs heavy capital expenditures.
• USM is progressing towards most of its 2026 goals though.
• While a buyout offer may come from one of the big telecom players, I doubt it will be now given the stock's run.

United States Cellular Corporation ( USM ) recently reported its Q3 earnings as Seeking Alpha has covered here . Revenue of $963 million came in about 4% below the expected $1 billion mark while EPS of 26 cents beat by 500%. I wouldn't read too much into that EPS margin as the company has a history of reporting some widely fluctuating numbers on that front. Overall though, the market seems to have liked the report as the stock ended up nearly 5% on Friday, November 3rd.

What Does USM Do?

USM is a mobile network operator, headquartered in Chicago, Illinois. Founded in 1983, USM is a subsidiary of Telephone and Data Systems, Inc. ( TDS ), which I reviewed earlier this year. In the company's own words , USM " connects 5 million people, businesses, and government operations with our award-winning network ". The company reported $4.16 billion in revenue in 2022 and has recently been discussed as a potential acquisition target.

Let's now review The Good, The Bad, and The Ugly from USM's Q3 report.

The Good

• Fixed wireless customer count grew 57% YoY to reach 106,000. Equally impressive is that this number has gone up QoQ at least for the last 4 quarters, validating the company's growth initiatives that included fixed wireless services and tower portfolio.

• USM is progressing towards its goal of having access to 1.2 million marketable addresses for its Fiber services by 2026. At the end of Q3 2023, the number stands at about 700 million, representing nearly 30% YoY growth. Fiber now represents 44% of the total service addresses that USM has access to. Reaching the 2026 goal is important for USM as well as its customers. Customers would undoubtedly appreciate having access to Fiber's reliability and speed while USM would appreciate the fact that it can charge a little more for Fiber compared to Copper and Coaxial networks.

• Tower revenue grew 8% YoY and also showed at least a 4th QoQ increase to reach $25.4 million. It is important for USM to continue showing strength here as it is the biggest attractive point as far as potential suitors are concerned. US telecom's "Big 3" made up 88% of USM's tower revenue in Q3. At some point, one of them may simply decide to make an offer for USM at the right price instead of shelling out huge rent for the towers. As a related note, the number of towers has gone up sequentially in each of the last 4 quarters as well, going from 4,329 in Q3 2022 to 4,356 in Q3 2023.

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