United States Cellular Corp (USM, Financial) has recently experienced a notable daily loss of -8.71%, with a 3-month decline of -4.83%. Despite these market fluctuations, the company maintains an Earnings Per Share (EPS) of $0.13. Investors are now faced with the critical question: is United States Cellular significantly overvalued? This article delves into a valuation analysis to uncover the answer, inviting readers to explore the following comprehensive financial assessment.
Company Introduction
United States Cellular Corp operates as a regional wireless carrier, catering to approximately 5 million customers across various U.S. regions. With a current stock price of $43.68 and a market cap of $3.70 billion, the company's valuation is a point of interest for investors. The GF Value, a proprietary measure of intrinsic value, suggests that the fair value for USM is $29.84, indicating that the stock may be significantly overvalued. This juxtaposition sets the stage for an in-depth analysis of United States Cellular's financial health and market position.
Summarize GF Value
The GF Value is a unique metric that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. When a stock's price significantly exceeds the GF Value Line, it may be considered overvalued, signaling potentially lower future returns. Conversely, a price well below the GF Value Line may suggest that the stock is undervalued, with prospects for higher returns. United States Cellular's current share price of $43.68 suggests that the stock is significantly overvalued when compared to the GF Value estimation.
Given this significant overvaluation, the long-term return of United States Cellular's stock could be much lower than its future business growth might suggest.
Financial Strength
Investing in companies with solid financial strength is crucial to avoid permanent capital loss. United States Cellular's cash-to-debt ratio of 0.04 ranks lower than 89.34% of competitors in the Telecommunication Services industry, leading to a financial strength rating of 4 out of 10. This indicates a weak balance sheet that could pose risks to investors.
Profitability and Growth
United States Cellular has shown profitability in 9 out of the past 10 years, with a revenue of $4 billion and an Earnings Per Share (EPS) of $0.13 over the past twelve months. However, its operating margin of 2.88% ranks below 70.44% of its industry peers. The company's profitability rank is 6 out of 10, reflecting moderate profitability. In terms of growth, United States Cellular's 3-year average revenue growth rate is lower than 54.93% of the industry, with a 3-year average EBITDA growth rate of -1.4%, ranking below 68.48% of industry counterparts.
ROIC vs WACC
Comparing Return on Invested Capital (ROIC) to Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital costs. United States Cellular's ROIC of 0.26 is significantly lower than its WACC of 3.41, suggesting that the company is not generating sufficient returns on its investments.
Conclusion
In conclusion, United States Cellular appears to be significantly overvalued based on current market indicators. The company's financial condition is weak, and its profitability and growth do not position it favorably compared to industry standards. For a more detailed financial overview, investors can review United States Cellular's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
