U.S. Cellular (USM)

Wireless telecommunications provider U.S. Cellular (NYSE:USM) reported Q2 CY2025 results topping the market’s revenue expectations, but sales fell by 1.2% year on year to $916 million. Its GAAP profit of $0.36 per share was 7.7% above analysts’ consensus estimates.

Company Overview

Operating as a majority-owned subsidiary of Telephone and Data Systems since its founding in 1983, US Cellular (NYSE:USM) is a regional wireless telecommunications provider serving 4.6 million customers across 21 states with mobile phone, internet, and IoT services.

Terrestrial telecommunication companies face an uphill battle, as they mostly sell into a deflationary market, where the price of moving a bit tends to decrease over time with better technology. Without dependable volume growth, revenue growth could be challenged. Unfortunately, broadband penetration in their core US market is quite high already. On the other hand, data consumption from streaming entertainment and 5G expansion could provide a floor on growth for the next number of years. As if that wasn't enough to worry about, competition is intense, with larger telecom providers and hyperscalers expanding their own networks.

US Cellular competes with national wireless carriers including Verizon (NYSE: VZ), AT&T (NYSE: T), T-Mobile (NASDAQ: TMUS), and Dish Network (NASDAQ: DISH), as well as cable companies offering wireless services such as Comcast (NASDAQ: CMCSA) and Charter Communications (NASDAQ: CHTR).

A company’s long-term sales performance is one signal of its overall quality. Any business can have short-term success, but a top-tier one grows for years.

With $3.70 billion in revenue over the past 12 months, U.S. Cellular is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, U.S. Cellular’s demand was weak over the last five years. Its sales fell by 1.6% annually, a rough starting point for our analysis.

Long-term growth is the most important, but within business services, a half-decade historical view may miss new innovations or demand cycles. U.S. Cellular’s recent performance shows its demand remained suppressed as its revenue has declined by 4.7% annually over the last two years.

We can dig further into the company’s revenue dynamics by analyzing its most important segment, Services revenue. Over the last two years, U.S. Cellular’s Services revenue revenue (telecom services) averaged 1.9% year-on-year declines. This segment has outperformed its total sales during the same period, lifting the company’s performance.

This quarter, U.S. Cellular’s revenue fell by 1.2% year on year to $916 million but beat Wall Street’s estimates by 1.5%.

Looking ahead, sell-side analysts expect revenue to decline by 1.6% over the next 12 months. While this projection is better than its two-year trend, it’s tough to feel optimistic about a company facing demand difficulties.

U.S. Cellular was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.6% was weak for a business services business.

Looking at the trend in its profitability, U.S. Cellular’s operating margin decreased by 5.2 percentage points over the last five years. U.S. Cellular’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q2, U.S. Cellular generated an operating margin profit margin of 3.8%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for U.S. Cellular, its EPS declined by 16.5% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

Diving into the nuances of U.S. Cellular’s earnings can give us a better understanding of its performance. As we mentioned earlier, U.S. Cellular’s operating margin was flat this quarter but declined by 5.2 percentage points over the last five years. Its share count also grew by 1.1%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For U.S. Cellular, its two-year annual EPS declines of 6.7% show it’s still underperforming. These results were bad no matter how you slice the data.

In Q2, U.S. Cellular reported EPS at $0.36, up from $0.19 in the same quarter last year. This print beat analysts’ estimates by 7.7%. Over the next 12 months, Wall Street is optimistic. Analysts forecast U.S. Cellular’s full-year EPS of negative $0.30 will flip to positive $1.10.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

U.S. Cellular has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 6.4% over the last five years, slightly better than the broader business services sector.

Taking a step back, we can see that U.S. Cellular’s margin expanded by 9.2 percentage points during that time. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

U.S. Cellular’s free cash flow clocked in at $250 million in Q2, equivalent to a 27.3% margin. This result was good as its margin was 8.3 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

U.S. Cellular historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1%, lower than the typical cost of capital (how much it costs to raise money) for business services companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, U.S. Cellular’s ROIC averaged 1.4 percentage point decreases over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

U.S. Cellular reported $386 million of cash and $3.81 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $985 million of EBITDA over the last 12 months, we view U.S. Cellular’s 3.5× net-debt-to-EBITDA ratio as safe. We also see its $84 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing U.S. Cellular beat analysts’ EPS expectations this quarter. We were also happy its revenue narrowly outperformed Wall Street’s estimates. Overall, we think this was a solid quarter with some key areas of upside. The stock traded up 4.3% to $77.51 immediately after reporting.

Updated: November 8, 2025 at 11:19 PM EST

Are you wondering whether to buy U.S. Cellular or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

U.S. Cellular doesn’t pass our quality test. To kick things off, its revenue has declined over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

U.S. Cellular’s EV-to-EBITDA ratio based on the next 12 months is 63.3x. This valuation tells us a lot of optimism is priced in - we think other companies feature superior fundamentals at the moment.

Wall Street analysts have a consensus one-year price target of $72.80 on the company (compared to the current share price of $77.01), implying they don’t see much short-term potential in U.S. Cellular.