The Valuation Analysis of Telephone and Data Systems Inc (NYSE:TDS)

Telephone and Data Systems Inc (TDS) is a diversified telecommunications operator that provides mobile, telephone, and broadband services. The majority of its revenue comes from its UScellular segment. With a stock price of $17.73 and a market cap of $2 billion, TDS’s GF Value of $19.11 suggests that the stock is fairly valued.

The GF Value is computed based on historical multiples, guru focus adjustment, and future estimates of business performance. At its current price, TDS’s market cap reflects its fair value. This implies that the long-term return of the stock is likely to align with the rate of business growth.

However, it’s important to assess TDS’s financial strength before making investment decisions. The company’s cash-to-debt ratio of 0.05 is lower than 85.93% of companies in the Telecommunication Services industry, indicating poor financial strength. Overall, TDS’s financial strength is rated as 4 out of 10.

Profitability is another crucial factor to consider. TDS has been profitable in 9 out of the past 10 years and had revenues of $5.30 billion in the past 12 months. However, it reported a Loss Per Share of $0.85 during that period. Its operating margin of 1.13% is lower than 75.65% of companies in the industry. Additionally, TDS’s 3-year average annual revenue growth rate of 2.1% and average EBITDA growth rate of -1.5% compare unfavorably to industry averages.

Comparing TDS’s return on invested capital (ROIC) to its weighted average cost of capital (WACC) further evaluates its profitability. TDS’s ROIC of 1.08 is lower than its WACC of 4.33, indicating that the company is not generating sufficient value for shareholders.

In conclusion, while TDS’s stock appears to be fairly valued, its financial strength is poor and its profitability is average. The company’s growth rates also fall below industry averages. Investors should consider these factors before making investment decisions.