Can U.S. Cellular (USM) Spring A Surprise In Q1 Earnings?

United States Cellular Corp. (NYSE:USM) , the wireless subsidiary of Telephone & Data Systems Inc. (NYSE:TDS) , is slated to report first-quarter 2017 results on May 5, before the opening bell.

Last quarter, the company delivered a positive earnings surprise of 12.50%. Moreover, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average positive surprise of 7.80%.

Let’s see how things are shaping up for this announcement.

Factors at Play

The price performance of U.S. Cellular looks depressing. Over the past three months, shares of U.S. Cellular declined 6.8% compared with the Zacks-categorized Wireless National industry’s loss of 2.1%.

U.S. Cellular continues to face numerous headwinds. It operates in a highly competitive wireless market and is significantly challenged by low-cost mobile service plans from others. Additionally, high costs associated with network integration and construction of cell sites, aggressive pricing by larger rivals and the ongoing consolidation in the wireless industry through mergers, acquisitions and joint ventures are risks to first-quarter results. The company’s last reported cash and liquidity scenario was also stressful. We wait to see if the company recovers in the to-be reported quarter.

Nevertheless, U.S. Cellular’s top priority has always been subscriber additions and churn management. To this end, the company has taken up different calculative and judicious business moves such as the introduction of a new billing system, continuous rollout of 4G LTE, enhancement of LTE handsets, completion of various spectrum transactions and monetization of non-strategic assets.

Moreover, Shared Connect plans which offer more data, larger allotments and unlimited offerings bode well. The company’s decision to upgrade its existing prepaid plans by increasing the amount of data available, should help witness more prepaid subscriber addition. In the last reported quarter, the prepaid subscriber base totaled 484,000 with the addition of 4,000 prepaid customers.

Meanwhile, U.S. Cellular is also optimistic about its collaboration with Ericsson (NASDAQ:ERIC) for 5G network trials, followed by the growing demand for smartphones, which enjoy significant market penetration, supporting growth in data revenues. The company is also focused on various cost cutting initiatives.

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 has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 11 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Cellular has a Zacks Rank #4 (Sell). We caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stock to Consider

Here is a company from the Zacks-categorized broader Computer and Technology sector — which houses U.S. Cellular— that have the right combination of elements to post an earnings beat this quarter.

Apptio Inc. (NASDAQ:APTI) has an Earnings ESP of +8.33% and a Zacks Rank #3.You can see the complete list of today’s Zacks #1 Rank stocks here. The company will release first-quarter 2017 earnings on May 4.

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