3 Wireless Non-US Stocks Likely to Thrive on Industry Strength

The Zacks Wireless Non-US industry appears well-poised to benefit from healthy demand trends stemming from the increasing propensity to stay connected. However, high capital expenditure for infrastructure upgrades, margin erosion, supply-chain disruptions due to geopolitical conflicts, raging wars and high customer inventory levels have dented the industry’s profitability.

Nevertheless, TIM S.A. TIMB, Ceragon Networks Ltd. CRNT and PLDT Inc. PHI are likely to capitalize on the solid long-term growth opportunities and rising demand for scalable infrastructure for seamless wireless and fiber connectivity, with the wide proliferation of IoT and accelerated 5G deployment.

Industry Description

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?

Network Convergence: The convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. With the exponential growth of mobile broadband traffic and home Internet solutions, 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. The industry participants continue investing in networks to increase coverage and implement new technologies to optimize network capabilities. 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.

High Production Costs: Although supply chain woes have declined progressively, the industry is facing a dearth of chips, which are the building blocks of various equipment used by telecom carriers. Moreover, high raw material prices due to the Israel-Hamas conflict, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have affected the operation schedule of various firms. The demand-supply imbalance has crippled operations and largely affected profitability due to inflated equipment prices. 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 is likely to limit the ability to attract and retain customers and affect operating and financial results.

Focus on Holistic Growth: While delivering mission-critical communication services, the industry firms are undertaking decisive 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 companies aim to extend their geographical footprint by developing existing businesses and strategic acquisitions. Wireless carriers are also adopting unlimited plans to enhance average revenue per user. They are focusing on 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.

Zacks Industry Rank Indicates Bullish Prospects

The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #44, which places it in the top 18% 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 Lags Sector, S&P 500

The Zacks Wireless Non-US industry has lagged the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.

The industry has gained 3.3% over this period compared with the S&P 500’s and sector’s rise of 9.3% and 8.2%, respectively.

One-Year Price Performance

Industry's Current Valuation

The Price/Book ratio is commonly used for valuing wireless stocks. The industry currently has a trailing 12-month P/B of 1.06X compared with the S&P 500’s 7.82X. It is also trading below the sector’s trailing 12-month P/B of 9.09X.

Over the past five years, the industry has traded as high as 3.66X and as low as 0.32X, with a median of 0.83X, as the chart below shows.

Enterprise Value-to-EBITDA Ratio (Past Five Years)

3 Non-US Wireless Stocks to Bet on

Tim: Based in Rio de Janeiro, Brazil, Tim is one of the leading communication service providers in the Latin American country. The company focuses on aggressive 5G rollout throughout the country and reportedly has twice the number of 5G sites as its competitors. With a client base of more than 730,000, Tim’s broadband services are present in more than 70 cities. The company aims to continue using the asset-light model to expand its broadband footprint while evolving its B2B verticals, bringing IOT connectivity and solutions to Brazil’s infrastructure. With a VGM Score of A, the company has a long-term earnings growth expectation of 16.1%. This Zacks Rank #2 (Buy) company’s shares have gained 6.3% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: TIMB

Ceragon: Headquartered in Rosh HaAyin, Israel, Ceragon provides wireless backhaul and fronthaul solutions that enable cellular operators and other wireless service providers to increase operational efficiency. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/distributed cells and the core of the service provider's network. This Zacks Rank #2 firm offers highly reliable, fast-to-deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate and labor resources. Ceragon delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization. It has a VGM Score of B.

Price and Consensus: CRNT

PLDT: 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 Europe-based Internet company, to develop online and mobile payment solutions. PLDT operates the country's most extensive international submarine cable network and has activated the U.S.-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. It has a VGM Score of A. This Zacks Rank #3 (Hold) company has a long-term earnings growth expectation of 7.5%. 

Price and Consensus: PHI

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This article originally published on Zacks Investment Research (zacks.com).

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