What's In The Cards For U.S. Cellular (USM) In Q4 Earnings?

United States Cellular (NYSE:USM) , the wireless subsidiary of Telephone & Data Systems (NYSE:TDS) , is slated to report fourth-quarter 2017 results on Feb 23, before the opening bell.

The Zacks Consensus Estimate for revenues is pegged at $1 billion, reflecting year-over-year improvement of 0.9%. The consensus estimate for the bottom line is pegged at a loss of 8 cents per share, indicating year-over-year decline of 14.3%.

However, the company’s earnings surpassed the Zacks Consensus Estimate in two of the previous four quarters, with an average beat of 115.9%.

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

Factors Likely to Influence Q4 Earnings

The price performance of U.S. Cellular has been unimpressive. Over the past three months, shares of U.S. Cellular have lost 7.2% against the industry’s gain of 3.6%.

U.S. Cellular continues to face a number of headwinds. It operates in a highly competitive wireless market and is significantly challenged by low-cost mobile service providers. 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 fourth-quarter results. The company’s cash and liquidity scenario in the last quarter was also dismal. It is to be seen whether the company can turn this situation around in the to-be-reported quarter.

Nevertheless, U.S. Cellular’s top priority has always been subscriber addition and churn management. Toward this end, the company has taken up different judicious business measures such as introduction of a billing system, continuous rollout of 4G LTE, enhancement of LTE handsets, completion of various spectrum transactions and monetization of non-strategic assets. The company’s decision to upgrade its existing prepaid plans by increasing the amount of data available is likely to drive prepaid subscriber addition. In the last reported quarter, prepaid subscriber base totaled 515,000 compared with 484,000 at the end of 2016.

U.S. Cellular is optimistic about the growing demand for smartphones, which enjoy significant market penetration. The company is gearing up to deploy 5G wireless network. It has completed joint testing of various 5G use cases at 28GHz in partnership with U.S. Ericsson (BS:ERICAs). U.S. Cellular has teamed up with Nokia (HE:NOKIA) Corp (NYSE:NOK) to enhance the wireless experience for business customers. 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 -56.52%. This is because the Most Accurate estimate stands at a loss of 12 cents per share while the Zacks Consensus Estimate is pegged at a loss of 8 cents. You can uncover the best stocks to buy or sell before they’re reported with the Earnings ESP Filter.

Zacks Rank: U.S. Cellular has a Zacks Rank #3, which increases the predictive power of ESP. However, we need to have a positive ESP for a likely earnings surprise.

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

Stock to Consider

SBA Communications (NASDAQ:SBAC) from the broader Computer and Technology sector has the right combination of elements to post an earnings beat in fourth-quarter 2017, scheduled to be reported on Feb 26. The company has an Earnings ESP of +7.80% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

The company’s sales for fourth-quarter 2017 and first-quarter 2018 are estimated to increase 5% and 6.4%, respectively.

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