Can USM Stock Maintain its 92% Growth Pace Despite Divestiture?

Shares of United States Cellular Corporation USM have surged 91.7% over the past year, backed by healthy traction in the wireless business. Earnings estimates for the current and next fiscal years have increased 45% and 40.2%, respectively, since March 2024, implying robust inherent growth potential. With healthy fundamentals, this Zacks Rank #1 (Strong Buy) stock appears primed for further appreciation.

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Key Growth Drivers of USM

U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. Its improvised strategy to launch flat rate plans is enabling it to successfully navigate the fierce competition in the U.S. wireless industry. The wireless carrier is expanding its footprint while adopting unlimited plans to enhance average revenue per user. While 5G and network modernization programs are on track, the company is optimistic about the use of the millimeter wave spectrum for fixed wireless access and its potential to serve rural customers.

Its top line is benefiting from solid user engagement in its fixed wireless business and a steady improvement in tower rental revenues. In the fourth quarter, fixed wireless customers grew 27% year over year to 145,000. The geographical diversity and well-balanced presence across various major wireless carriers highlight the robustness of its tower rental portfolio.

USM is taking several initiatives to reduce its debt burden, improve liquidity and accelerate investments in network advancements. The company is monetizing its spectrum holdings. It has inked a definitive agreement with T-Mobile US Inc. TMUS to sell substantially all of its wireless operations, along with 30% of its spectrum assets across several spectrum bands. T-Mobile will pay an aggregate of $4.4 billion, including a combination of cash and approximately $2 billion of assumed debt. 

The divestiture will enable U.S. Cellular to improve its liquidity and reduce its debt burden, with an option to opportunistically monetize the retained 70% of total spectrum assets. Moreover, the company will enjoy a steady revenue stream with T-Mobile as its anchor tenant on a minimum of 2,015 incremental towers for 15 years in addition to approximately 600 towers where it already serves as a tenant.

USM Focusing on Higher Average Revenue Per User

U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology.  

The wireless carrier is expanding its footprint while adopting unlimited plans to enhance average revenue per user. While 5G and network modernization programs are on track, the company is optimistic about the use of the millimeter wave spectrum for fixed wireless access and its potential to serve rural customers. It has made progress on strategic objectives, growing its customer base by increasing handset connections and customer loyalty to boost revenues and profitability. 

USM has taken a number of actions that are likely to accelerate growth in the coming days. These include the introduction of a new billing system, the continuous rollout of 4G Long-Term Evolution (LTE), the enhancement of LTE handsets and the completion of various spectrum transactions. U.S. Cellular is focused on improving cost and profitability by managing data delivery costs and has introduced equipment installment plans. It has been expanding its 5G device offering for consumers and businesses. It aims to provide excellent customer service while ramping up business opportunities that use 5G and IoT.

Other Key Picks

Arista Networks, Inc. ANET, carrying a Zacks Rank #2 (Buy), is likely to benefit from strong momentum and diversification across its top verticals and product lines. Arista has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experiences. Arista delivered an earnings surprise of 12.9%, on average, in the trailing four quarters. It is well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ubiquiti Inc. UI, sporting a Zacks Rank #1, offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Ubiquiti’s service-provider product platforms offer carrier-class network infrastructure for fixed wireless broadband, wireless backhaul systems and routing, while enterprise product platforms provide wireless local area network infrastructure, video surveillance products and machine-to-machine communication components. In the trailing four quarters, Ubiquiti delivered an earnings surprise of 7.5%.

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This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research