Here's Why You Should Sell Telephone And Data Systems (TDS)

On Apr 10, 2017, we issued an updated research report on Telephone and Data Systems Inc. (NYSE:TDS) , a leading provider of telecommunications services.The stock currently carries a Zacks Rank #4 (Sell).

The price performance of Telephone and Data Systms was quite depressing for the past three months. The stock declined 11.9%, while the Zacks-categorized Wireline - National industry contracted 10.6% over the same time frame.

Telephone and Data Systems is a leading regional wireline voice and video service provider in the U.S. which competes with the likes of CenturyLink Inc. (NYSE:CTL) and Frontier Communications Corp. (NASDAQ:FTR) to name a few. Additionally, the company’s wireless division – United States Cellular Corp. (NYSE:USM) – continues to operate in an intensely competitive wireless market and remains significantly challenged by the offering of service plans from lower-cost mobile operators.

We further believe that high costs associated with network integration and construction of new cell sites, aggressive equipment pricing, increasing capacity in existing cell sites, wireless technology upgrades and spectrum licensing will put considerable pressure on the company’s finances.

The company’s dismissal performance in certain metrics in the last reported fourth quarter of 2016 was a major setback. We look forward to seeing whether these metrics perform better or worse in the to-be-reported quarter.

On the flip side, we appreciate Telephone and Data Systems’ efforts to reward its shareholders with a first-quarter 2017 dividend of 15.5 cents per Common Share and Series A Common Share. The dividend was paid on Mar 31, 2017, to shareholders of record as of Mar 17, 2017.

Moreover, Telephone & Data Systems continues to expand its business in the managed hosting and cloud service market through a new cloud-based storage service and managed IP connections. Also, Telephone and Data Systems’ flexible cash position and liquidity opens up scope for investments.

The launch of Shared Data plans for consumers and businesses at nominal prices have helped the company gain consumers. We expect to witness a similar addition of subscribers in the upcoming results. The rollout of IPTV also bodes well. Moreover, the company experienced strong smartphone demand at United States Cellular Corp.

The deal to purchase InterLinx Communications LLC will boost the fiber-optics suite of Telephone and Data Systems’ subsidiary, TDS Broadband Service LLC.The deal adds more than 170 route miles of fiber-optic transport of InterLinx to TDS Broadband Services.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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