What is USM's Intrinsic value?

United States Cellular Corp (USM) Intrinsic Value Analysis

Executive Summary

As of June 6, 2025, United States Cellular Corp's estimated intrinsic value ranges from $9.73 to $47.01 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $9.73 -84.4%
Dividend Discount Model (Multi-Stage) $47.01 -24.8%

Is United States Cellular Corp (USM) undervalued or overvalued?

With the current market price at $62.53, the stock appears to be significantly overvalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate United States Cellular Corp's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.33 0.53
Cost of equity 5.4% 7.8%
Cost of debt 5.8% 20.9%
Tax rate 37.8% 46.4%
Debt/Equity ratio 0.54 0.54
After-tax WACC 4.8% 9.0%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.9% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $3,770 (FY12-2024) to $4,841 (FY12-2034)
  • Net profit margin expansion from -1% to 6%
  • Capital expenditures maintained at approximately 28% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $(1,234) $(155)M 125.9%
10-Year Growth $10 $3,500M 85.6%
5-Year EBITDA $59 $7,699M 99.5%
10-Year EBITDA $63 $8,028M 93.7%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.6%
  • Long-term growth rate: 3.8%
  • Fair value: $47.01 (-24.8% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.8% (Low) to 5.4% (High)
  • Long-term growth rate: 3.0% (Low) to 4.5% (High)
  • Fair value range: $(7) to $(47)
  • Selected fair value: $-26.68 (-142.7% from current price)

Key Financial Metrics

Metric Value
Market Capitalization $5315M
Enterprise Value $7988M
Trailing P/E 0.00
Forward P/E 174.61
Trailing EV/EBITDA 8.25
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.54

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 60% $2.92
Dividend Discount Model (Multi-Stage) 40% $9.40
Weighted Average 100% $24.64

Investment Conclusion

Based on our comprehensive valuation analysis, United States Cellular Corp's weighted average intrinsic value is $24.64, which is approximately 60.6% below the current market price of $62.53.

Key investment considerations:

  • Strong projected earnings growth (-1% to 6% margin)
  • Consistent cash flow generation

Given these factors, we believe United States Cellular Corp is currently significantly overvalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.