Shares of U.S. Cellular (USM) experienced a significant surge on Tuesday following an upgrade by analyst Philip Cusick at J.P. Morgan. The upgrade also extended to Telephone & Data Systems (TDS), the parent company of U.S. Cellular.
This positive development comes on the heels of an announcement made on Friday by U.S. Cellular and Telephone & Data Systems, revealing that their boards were exploring strategic alternatives for U.S. Cellular. With Telephone & Data Systems currently holding approximately 82% ownership of U.S. Cellular, this decision holds significant implications.
The announcement coincided with U.S. Cellular reporting a 6.8% drop in second-quarter sales and a downward revision of its full-year services revenue outlook.
Since the announcement, U.S. Cellular's stock has remarkably surged by 103%. Furthermore, in 2023 alone, the stock has gained an impressive 70%, while Telephone & Data Systems has experienced a 45% rise.
Cusick responded to these developments by upgrading both companies' shares from Neutral to Overweight. Additionally, he increased his price target on U.S. Cellular from $24 to $52 and on Telephone & Data Systems from $14 to $38.
In his research report, Cusick emphasized the belief that U.S. Cellular is too small to effectively compete with T/VZ/TMUS. Therefore, the exploration of strategic alternatives, accompanied by guidance reduction, may indicate the agreement of the Carlson family. Leroy Carlson serves as the CEO of Telephone & Data Systems.
Cusick further added, "While churn is performing well, the costs involved in driving gross additions to USM and retaining customers are economically unsound. Selling the company seems like the right move, and the exploration of strategic alternatives is likely to unlock substantial value."
As a result of this positive news, shares of U.S. Cellular have witnessed a 14% increase, reaching $35.51 on Tuesday. This marks the stock's highest closing price since July 2021, according to Dow Jones Market Data. Concurrently, shares of Telephone & Data Systems have climbed by 15% to $15.22, reaching their highest closing price since November 2022.