Company Reports

The steady drip of market share losses at US Cellular continued in the first quarter, a trend we expect to persist. Management reiterated that the strategic review initiated nine months ago continues and that it won’t comment on the effort until a conclusion is reached. We still believe US Cellular should sell all or most of its assets to other carriers or tower firms, and our stand-alone fair value estimate remains $25.

Fourth-quarter U.S. Cellular results brought much of the same. We commend management for pulling out all the stops to improve its network and customer experience and find sources of growth outside the core mobile phone business. However, we believe the firm is fighting an unwinnable battle against bigger, better-funded competitors. The stock remains elevated on management's reiteration that it is exploring strategic alternatives, and we believe the firm's assets have value beyond what U.S. Cellular can extract by operating independently. However, on a stand-alone basis as a continuing operator, our fair value estimate is $25.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular's third-quarter results were consistent with the past several quarters. The firm is making encouraging progress on some smaller lines of business, but those are not enough to move the needle relative to the core mobile phone business, which continues to struggle. We believe U.S. Cellular has valuable assets and is making an admirable effort, but it cannot compete with the national wireless carriers it's up against. U.S. Cellular's standalone value continues to deteriorate, in our view, as its customer base shrinks each quarter. The firm reiterated its exploration of strategic alternatives, and the stock remains elevated on those hopes. We think a sale of the firm would be in the best interest of shareholders, but the potential outcomes and valuation remain highly speculative. We're maintaining our $24 fair value estimate, which is based on the firm's current standalone value.

U.S. Cellular’s business continued deteriorating in the second quarter, but the stock skyrocketed after the firm announced it was exploring strategic alternatives. We believe the firm’s assets have significant value that makes today’s stock move warranted. However, the willingness of the controlling shareholder to accept potential incoming bids, and other challenges, including regulatory and tax issues, make potential outcomes highly speculative. We are maintaining our $24 fair value estimate, which continues to value U.S. Cellular on a standalone basis. We believe the value of the firm if operated independently is lower than it is in the hands of other owners.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular’s management has pointed to signs that make it optimistic. Not only did first-quarter results not reveal any of those underlying trends, but in some cases, they contradicted the narrative. The two areas of the business that are seemingly performing well—towers and fixed-wireless broadband—are much too small to offset the firm’s declining mobile phone business. Management maintains that its plan is on track and it will get a boost when it can deploy its midband spectrum, but we fear that it is admirably fighting a losing battle against gigantic peers. In the meantime, the network buildout continues to be a drain on cash, and the controlling shareholders don’t seem interested in selling assets that we think have value. We are reducing our fair value estimate to $24 per share from $28.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular’s fourth-quarter performance was similar to recent trends. The firm continues to suffer from mobile phone subscriber losses while seeing a steady climb in postpaid average revenue per user, or ARPU. The firm also has some momentum behind and a very optimistic outlook for its tower and fixed-wireless businesses, but they remain much too small to overshadow a stagnant mobile business. Margins were under a bit of pressure from a rise in bad debt and promotional expenses, but costs were otherwise well contained. Overall, there was little to change our forecast, and we are maintaining our $28 fair value estimate.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

Although U.S. Cellular’s management highlighted some positive signs it believes show its strategy to improve performance with postpaid wireless customers is on the right track, the results don’t yet show it. Worse, expenses associated with these customers skyrocketed. Our view of U.S. Cellular has not changed—we expect a reduction in the level of customer losses rather than growth. However, we’re revising our near- and long-term projections for profitability, resulting in our fair value estimate dropping to $28 from $32.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular has several areas of focus that it believes will turn around its fortunes. Although we believe the firm is making admirable efforts on multiple fronts, we’re skeptical that it can halt its market share losses to much larger competitors. Its plans are correctly, in our opinion, long-term and structural rather than short-term Band-Aids, so the lack of short-term results is not determinative, but nothing in the firm’s mediocre second-quarter results changes our view. We’re raising our fair value estimate to $32 per share from $31 due to the time value of money rather than any change to our forecast. We see the stock as fairly valued.

U.S. Cellular faces challenges that are a byproduct of its small regional scale in an industry that has come to be dominated by gigantic national wireless carriers. We think its core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

U.S. Cellular has highlighted several areas of focus where it thinks it has exciting growth opportunities. These are generally long-term initiatives, and some aren’t even operative yet. Nonetheless, little in its first-quarter results signaled a path to success, and in the meantime, the core wireless phone business continues to struggle with customers. We think U.S. Cellular will have a very difficult time doing anything more than stabilizing its retail phone customer base. We see potential in some of the other initiatives, but they will require patience and carry significant uncertainty. We are maintaining our $31 fair value estimate and believe the stock is fairly valued, but we don’t expect encouraging results in the near term.

U.S. Cellular faces challenges that are a byproduct of its small, regional scale in an industry that has come to be dominated by gigantic, national wireless carriers. We think the firm’s core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.

We see reasons for optimism about U.S. Cellular’s future, but in the near term, continual customer losses are holding it back. Even longer term, potential sources of sales growth coming from a renewed focus on tower leasing and a rollout of fixed wireless service in the coming years will be secondary to how successful the firm is in building its postpaid smartphone customer base. With customer additions in 2021 disappointing, and the firm’s guidance making us doubt that 2022 will be much better, we’re reducing our fair value estimate from $33 to $31.

U.S. Cellular faces challenges that are a byproduct of its small, regional scale in an industry that has come to be dominated by gigantic, national wireless carriers. We think the firm’s core wireless business will continue to be challenged as a result. However, we’re optimistic about some of the other levers the firm is looking to pull in its operations, and U.S. Cellular holds assets that we think have significant value, including its portfolio of over 4,000 towers and a 5.5% stake in Verizon’s Los Angeles wireless business.