United States Cellular Corp. (USM) is the sixth largest wireless telecom operator in the U.S. and the largest subsidiary of Telephone and Data Systems Inc. (TDS). Although competition has intensified following recent consolidation in the wireless industry, U.S. Cellular's high service standards have helped maintain steady growth of subscribers and low churn (customer switching) rates (less than 2% for over ten years).

The company continues to improve customer retention while increasing operating return per subscriber. The management also issued a positive outlook for 2008 and continues its focus on improving profitability through network technology upgrades and strengthening its brand image. We maintain our Hold rating while providing a premium to its current valuation as we assess subscriber retention trends and the sustainability of average revenue per unit (ARPU) levels moving forward.

U.S. Cellular trades at 16.9x our 2008 EPS estimate, which represents a discount to the forward P/E ratio for the industry group. On the basis of Enterprise Value (EV) to EBITDA (a common valuation metric for wireless carriers), the stock is trading at 5.2x estimated 2008 EBITDA which is at a discount to the industry average. We have set a six-month price target of $61.50 based on EV/EBITDA multiples of 5.5x, closing in on peer group levels.

Anindya Barman contributed to this report.