Zacks Analyst Blog Highlights: Telephone and Data Systems, U.S. Cellular, Charles Schwab Corporation, BlackRock and State Street

CHICAGO--(BUSINESS WIRE)--Zacks.com Analyst Blog features: Telephone and Data Systems (NYSE: TDS), U.S. Cellular (NYSE: USM), Charles Schwab Corporation (NYSE : SCHW), BlackRock Inc. (NYSE: BLK) and State Street Corp. (NYSE: STT).

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Here are highlights from Monday’s Analyst Blog:

TDS Earnings Disappoint

Telephone and Data Systems (NYSE: TDS) announced second-quarter 2010 earnings per share (EPS) of 38 cents, which was well below the Zacks Consensus Estimate of 48 cents and earnings of 60 cents in the year-ago quarter. Earnings were affected by stiff competition from wireless and wireline businesses as well as the uncertainty in consumer and business activities.

Net income plunged 39% year-over-year to $40.3 million, due to lower revenues. Revenues dropped 1% year-over-year to $1,232.2 million owing to lower voice revenues.

U.S. Cellular (Wireless)

Revenues from the company’s Wireless subsidiary U.S. Cellular (NYSE: USM) slipped 1% year-over-year to $1,029.9 million. Service revenues dipped 0.2% year-over-year to $972.6 million on account of lower voice and roaming revenues, partly offset by healthy data revenue growth.

Retail service ARPU (average revenue per user) remained almost flat year-over-year at $46.81. Inbound roaming ARPU declined to $3.30 from $3.35 in the year-ago quarter. Post-paid churn remained low at 1.4% due to expanded 3G network, compared with 1.7% in the year-ago quarter.

U.S. Cellular lost 3,000 customers in the quarter (better than a net loss of 88,000 customers in the year-ago quarter), ending the quarter with a total subscriber base of nearly 6.14 million (including retail customers of 5.77 million).

TDS Telecom (Wireline)

Revenues from the Wireline segment grew 2% year-over-year to $199.2 million, as data and revenue growth was partly offset by the decline in voice revenues. The segment faces competition from incumbent local exchange carriers (ILECs) and contends with the ongoing wireless substitution trend and VoIP services from cable operators.

In the reported quarter, ILEC high-speed data customer base grew 13% year-over-year to 223,200. However, ILEC equivalent access lines and physical access lines fell 0.4% and 4.2% to 779,200 and 525,000, respectively.

Schwab Launches New ETFs

Last week, Charles Schwab Corporation (NYSE: SCHW) announced the launch of three new bond Exchange-Traded Funds (ETFs). This will increase the tally of Schwab’s total ETFs to 11. Previously the company had 8 Equity ETFs. The new bond ETFs are expected to offer coverage to short-term, intermediate-term and inflation-protected securities.

The three new ETFs – the Schwab Short Term U.S. Treasury ETF (“SCHO”), Schwab U.S. TIPS ETF (“SCHP”) and Schwab Intermediate-Term U.S. Treasury ETF (“SCHR”) – have low operating expenses. Also, Schwab will charge no online trading commission from its clients.

Schwab Bond ETFs are suitable for those investors who want a diversified portfolio and an exposure to the fixed income holdings at low cost. Schwab ETFs are listed on NYSE Arca and are also traded on other exchanges.

Schwab’s new ETFs, SCHO and SCHR will charge an expense of 0.12% while SCHP will charge 0.14%. These are some of the cheapest ETFs available in the financial markets and sync well with the company’s strategy of providing low cost financial products to the investors.

Schwab has been doing exceptionally well in ETFs industry. The company launched its first ETF in November 2009. As of July 30, 2010, its eight ETFs had $1.4 billion assets under management, up 300% from December 31, 2009.

Though Schwab allowed its customers free trading in ETFs and kept the fees in line or below those of its peers, the company has a long way to go before it can match market leaders such as BlackRock Inc. (NYSE: BLK) and State Street Corp. (NYSE: STT).

With a huge demand for low cost ETFs from investors, advisors and traders, we believe that Schwab has an incredible potential for continued growth in this sector.

Though we suspect that Schwab will be further impacted by the challenging market conditions and volatile interest rate environment, its focus on lower-cost capital structure and aggressive cost control efforts will facilitate the company in the upcoming quarters.

Schwab currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Also, considering the fundamentals, we are maintaining our long-term Neutral recommendation on the stock.

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