TELEPHONE & DATA SYSTEMS INC /DE/ (TDS) stock intrinsic value fair value estimate & owner earnings analysis

Telephone and Data Systems (TDS) is a telecommunications holding company that has just gone through the biggest change in its history. On August 1, 2025, its majority-owned wireless subsidiary (formerly marketed as UScellular, now called Array) completed the sale of its wireless operations and most of its spectrum to T-Mobile. What remains going forward is smaller and different: TDS Telecom, the company's wireline and fiber-broadband business, plus Array's retained cell-tower portfolio, which now earns steady lease income from T-Mobile under a long-term site agreement instead of running its own wireless network. Because this is such a fundamental change, we valued TDS as the business it is today rather than as the wireless-and-wireline company it used to be. The company's own restated results show that, on a continuing-operations basis (excluding the sold wireless business), owner earnings - the cash generated for shareholders after real operating costs, stock-based pay, and the capital spending needed just to keep the network running - were roughly break-even to modestly negative in 2023 and 2024, and turned only mildly positive in 2025. That period is also when TDS Telecom has been in the middle of a heavy, multi-year fiber build-out, much of it tied to a federal rural-broadband support program that guarantees revenue support for the markets it builds through 2038, but requires heavy near-term construction spending - management has guided to $550-600 million of TDS Telecom capital spending in 2026 alone, up sharply from 2025. We used the middle of this three-year window as our starting point for owner earnings, which comes out to a modest per-share loss today - an honest reflection of a company self-funding a large infrastructure build rather than one quietly generating cash. Two accounting judgments materially affect the numbers. First, TDS owns most but not all of Array - the public still holds a minority stake - so we backed out the portion of cash flow that belongs to Array's outside shareholders before arriving at a per-TDS-share figure; the data available to do this is limited, so this is a reasonable estimate rather than an exact split. Second, TDS pays roughly $69 million a year in preferred dividends, a fixed obligation ahead of common shareholders, which we subtracted in every year - this is why the common share of owner earnings looks weaker than the consolidated headline numbers would suggest. Our base case assumes the fiber build-out remains a drag on cash for the next two to three years, then eases as the heaviest construction winds down, tower lease income reaches a full run rate, and TDS Telecom's growing fiber subscriber base increasingly offsets the ongoing decline of legacy copper and voice revenue. On that path we estimate the shares are worth roughly $23 today. Our bear case assumes construction costs run higher than budgeted, fiber uptake doesn't keep pace with copper losses fast enough, and a competing fiber or fixed-wireless provider takes share in TDS Telecom's markets; in that scenario, after debt service and the preferred dividend, there is little to nothing left over for common shareholders, and the shares are worth close to zero. Our bull case assumes the build-out finishes on budget, the government-backed revenue support and tower lease income ramp as disclosed, and the pending spectrum sales close and proceeds are used to pay down debt; that combination could make the shares worth roughly $47. Because TDS Telecom's fiber and tower assets, once built, should keep generating cash for decades, a meaningful part of our estimate rests on what the business earns well beyond the next ten years - an assumption we have tempered given that the federal revenue-support program underlying part of the network is currently guaranteed only through 2038. Given how wide the range is between our bear and base cases - a function of how new and unproven this smaller, fiber-focused TDS still is - the margin-of-safety price sits at a meaningful discount to our base-case estimate, and it assumes the fiber build-out is substantially completed without major cost overruns, with clear evidence that fiber subscriber growth is outpacing legacy line losses. We were not able to fully reconstruct the noncontrolling-interest cash flow split from the information available, so the portion of cash flow allocated to Array's minority shareholders is a reasonable estimate rather than an exact reconciliation.