U.S. Cellular Downgraded - Analyst Blog

We are downgrading our recommendation to Underperform from Neutral for U.S. Cellular (USM), the sixth-largest wireless Chicago-based carrier, due to disappointing second quarter 2010 results and outlook. The stock currently has a Zacks #5 ('Strong Sell') Rank.
 
The company’s earnings missed the Zacks Consensus Estimate in the second quarter and declined year over year. Moreover, revenues dipped 1%. Growth in data revenues (33%) was fully offset by lower voice revenues and lower inbound roaming revenues, resulting from Verizon Communication’s (VZ) acquisition of Alltel. U.S. Cellular added net 7,000 retail subscribers during the second quarter, with a net gain of 29,000 prepaid customers and a loss of 22,000 post-paid customers.
 
At the end of the second quarter, U.S. Cellular’s cash balance reduced to $232.9 million from $275.9 million in the year-ago quarter. The company currently has approximately $868 million in long-term debt.
 
Going forward, U.S. Cellular plans to drive data revenue growth with a strong smartphone portfolio and premium handset offerings, which include Android-powered phones. U.S. Cellular is focused on various opportunities to increase its revenues through an expanded 3G network and the potential adoption of Long-Term Evolution technology. Driven by the mounting demand of smartphones and associated data services, U.S. Cellular is aggressively deploying the Evolution-Data Optimized (EV-DO) technology and services in markets in order to tap the significant revenue opportunities through the roll out of advanced features and data services.
 
However, U.S. Cellular remains challenged by an increasingly competitive domestic wireless market and intense pricing pressure, which is affecting its customer accretion. We believe the company’s high-margin roaming revenues are under pressure. In addition, U.S. Cellular remains challenged by the lower cost service plans offered by some of its competitors such as Sprint Nextel Corp. (S), Leap Wireless International Inc. (LEAP) and MetroPCS Communications Inc. (PCS).

 
LEAP WIRELESS (LEAP): Free Stock Analysis Report
 
METROPCS COMMUN (PCS): Free Stock Analysis Report
 
SPRINT NEXTEL (S): Free Stock Analysis Report
 
US CELLULAR (USM): Free Stock Analysis Report
 
VERIZON COMM (VZ): Free Stock Analysis Report
 
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