Normally, the phrase “exploring strategic alternatives” doesn’t send investors into a buying frenzy. But it sure did in Friday’s trading for US Cellular (NYSE:USM), which shot up over 90% in that time. All it had to do, essentially, was announce that it was “exploring strategic alternatives,” and the buy-in began, big.
The majority owner of US Cellular, Telephone and Data Systems (NYSE:TDS) turned to Citi to serve as an advisor on developing a review of those strategic alternatives, whatever they should turn out to be. The move was enough to send Telephone and Data Systems’ stock blasting up as well, up over 77% in Friday afternoon’s trading. Citi settled in and got to work, to the point where one of its analysts, Michael Rollins, already put out a note about the arrangement. Rollins noted that the analysts could just declare “status quo” and everything keeps going as is, but there were a range of other possibilities on the table.
Possibilities ranging from a complete sale to a partial asset sale of, say, cell towers to other companies. Either way, it’s clear some kind of change is necessary, as US Cellular’s earnings report—released this morning—was a disaster. Both earnings and revenue were a miss, with earnings coming in at $0.05 against analyst expectations looking for $0.20 per share. Meanwhile, revenue came in at $957 million, which was not only below analyst expectations looking for $995.91 million, but was also down 7.1% against this time last year.
Analysts, meanwhile, are largely split on US Cellular’s overall trajectory. With one Buy rating, two Hold and one Sell, US Cellular stock is considered a Hold. Further, with an average price target of $23.25, US Cellular stock comes with a painful 30.43% downside risk.
