The Zacks Wireless Non-US industry appears poised to benefit from a gradual revival in post-pandemic market conditions and a faster pace of 5G deployment despite supply chain disruptions and chip shortages. However, large-scale investments for infrastructure upgrades to support the transition to 5G, high inflationary pressures and a challenging macroeconomic environment have eroded the sector's profitability.
Nevertheless, América Móvil, S.A.B. de C.V. AMX, Orange S.A. ORAN and PLDT Inc. PHI might benefit in the long run from significant long-term growth opportunities and rising demand for scalable infrastructure for seamless connectivity with the wide proliferation of IoT.
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services and prepaid and postpaid. The firms provide value-added services, such as the IoT, comprising logistics and fleet management and automotive and health solutions. They also offer content streaming, interactive applications, wireless security services and mobile payment solutions. Some industry players sell mobile handsets and accessories through dealer networks and offer co-billing services to other telecommunications service providers. The firms provide IT solutions, cable and satellite pay television subscriptions, as well as data services and hosting services to residential and corporate clients.
What's Shaping the Future of Wireless Non-US Industry
Holistic Growth Model: In addition to delivering mission-critical communication services, the companies are taking steps to accelerate subscriber additions and improve churn management. They aim to offer an exceptional wireless experience to consumers and business customers by providing superior network connectivity. The wireless carriers are expanding their footprint while adopting unlimited plans to enhance average revenue per user. They are progressing on strategic objectives, growing their customer base by increasing handset connections and customer loyalty to boost revenues and profitability. Furthermore, the industry participants are taking a holistic approach to content delivery. They are offering various pathways for delivering services through a combination of network-based video transcoding and compression technologies to provide IP video formats, live TV and streaming services.
Focus on Network Upgrade: With the exponential growth of mobile broadband traffic and home Internet solutions owing to the increasing work-from-home trend, user demand for coverage speed and quality has increased manifold. This has resulted in a massive demand for advanced networking architecture, forcing service providers to upgrade their networks to support the surge in home data traffic. Further, there is a continuous need for network tuning and optimization to maintain superior performance standards, creating demand for state-of-the-art wireless products and services. Moreover, telecom services show a weak correlation to macroeconomic factors as these are considered necessities. This, in turn, has led the carriers to focus more on network upgrades to cater to evolving customer needs. The convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. Although these investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised.
Profitability Woes Persist: Uncertainty regarding the chip shortage and supply-chain disruptions extending beyond semiconductors have crippled the manufacturing operations of most firms, leading to curtailed production schedules. This has led to a demand-supply imbalance, as the industry faces a dearth of essential fiber materials, shipping delays and shortages of containers and other raw materials, affecting the expansion and rollout of new broadband networks. Extended lead times for basic components have negatively impacted the delivery schedules and escalated costs. Moreover, raw material prices have risen significantly owing to economic uncertainty driven by the Russia-Ukraine war, soft market conditions in China and coronavirus-led adversities, affecting the short-term profitability of most firms. Wireless operators have been facing challenges due to the disruptive rise of over-the-top service providers in this dynamic industry. Price-sensitive competition for customer retention in the core business is expected to intensify in the coming days. Aggressive competition could limit their ability to attract and retain customers and affect operating and financial results.
Zacks Industry Rank Indicates Bullish Trends
The Zacks Wireless Non-US industry, which has 13 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #21, which places it in the top 8% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few non-US wireless stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms Sector, Lags S&P 500
The Zacks Wireless Non-US industry has outperformed the broader Zacks Computer and Technology sector but lagged the S&P 500 composite in the past year.
The industry has lost 13.5% over this period compared with the S&P 500’s and sector’s decline of 9.2% and 17.8%, respectively.
One-Year Price Performance
Industry's Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing wireless stocks. The industry currently has a trailing 12-month EV/EBITDA of 5.12X compared with the S&P 500’s 12.17X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 9.72X.
Over the past five years, the industry has traded as high as 22.54X, as low as 1.43X, with a median of 6.72X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Non-US Wireless Stocks to Keep a Close Eye on
América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The company has launched a 5G network in Austria. America Movil has also launched 4.5G networks in Brazil, Mexico and Dominican Republic that can deliver speeds up to 10 times faster than 4G to allow subscribers to experience voice and video in high definition. The Zacks Consensus Estimate for its current-year earnings has been revised 7.8% upward since July 2022. The stock has gained 8.8% in the past year and has a long-term earnings growth expectation of 8.5%. It has a VGM Score of B. America Movil currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AMX
Orange: Headquartered in Paris, Orange is one of the world’s leading telecommunications carriers with a presence in 26 countries. The company is also a leading provider of global IT and telecommunication services to multinational firms under the brand Orange Business Services. It has partnered with Move Capital to invest in the ‘Move Capital I’ venture capital fund that will empower Orange Business Services to become an integral stakeholder with a recognized panel of European technology companies. The combined synergies created from this partnership will allow European tech companies to reinforce their competitiveness and fortify Orange’s leadership in the region. The stock has a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has been revised 6.2% upward since October 2022. It carries a Zacks Rank #2.
Price and Consensus: ORAN
PLDT Inc.: Headquartered in Makati City, the Philippines, PLDT is the leading telecommunications provider in the Southeast Asian country. It has a strategic partnership with Rocket Internet SE, a European Internet company, to develop online and mobile payment solutions. PLDT operates the country's most extensive international submarine cable network and has activated the US-Transpacific Jupiter cable system to strengthen its extensive fiber network. The company is set to expand further with the completion of two more major international cable systems, namely Asia Direct Cable and the APRICOT cable system, set to be completed in the next two years. The consensus estimate for its current-year earnings has been revised 5.1% upward since September 2022. The stock has a long-term earnings growth expectation of 8.8%. PLDT sports a Zacks Rank #1.
Price and Consensus: PHI
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