The Zacks Wireless Non-US industry appears well poised to benefit from healthy demand trends stemming from the increasing user propensity to stay connected in this digital age. However, high capital expenditures for infrastructure upgrades, margin erosion, supply-chain disruptions due to geopolitical conflicts and high customer inventory levels have dented the industry’s profitability.
Nevertheless, Orange S.A., SK Telecom Co., Ltd. and KT Corp. are likely to gain from significant long-term growth opportunities across the industry 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 Optimization: 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 has led the carriers to focus more on network upgrades to cater to evolving customer needs.
Margins Dented: 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 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.
Holistic Growth Focus: While delivering mission-critical communication services, the industry firms are undertaking decisive steps to accelerate subscriber additions and improve churn management. The companies aim to extend their geographical footprint by developing existing businesses and strategic acquisitions while offering superior network connectivity.
Wireless carriers are also adopting various 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 Trends
The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #22, which places it in the top 9% 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 lost 5.2% over this period against the S&P 500’s and sector’s rise of 23.7% and 29.8%, respectively.
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 2.95X compared with the S&P 500’s 18.61X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 17.75X.
Over the past five years, the industry has traded as high as 9.08X and as low as 1.25X, with a median of 4.49X.
3 Non-US Wireless Stocks to Buy
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.
The company is focusing on the “Lead the future” plan, which aims to capitalize on network excellence to reinforce its leadership in service quality. The stock has a VGM Score of B. It has gained 2.4% in the past year and has a long-term earnings growth expectation of 13.7%. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
SK Telecom: Headquartered in Seoul, the company provides wireless telecommunication services in South Korea and globally. Together with its affiliates, it operates diverse Information and Communications Technology (“ICT”) businesses. With capabilities in 5G, artificial intelligence (AI), Big Data analysis and quantum cryptography communications, SK Telecom is strengthening its position as a global ICT leader.
It has embarked on the 'AI Pyramid Strategy' to accelerate innovation centered around three key areas — AI Infrastructure, AI Transformation and AI Service. It has a long-term earnings growth expectation of 3.5% and a VGM Score of A. It has gained 17.4% in the past year. SK Telecom currently sports a Zacks Rank #1.
KT Corp: Headquartered in Seongnam, South Korea, the company is the largest integrated telecom and digital platform service provider in the Southeast Asian country. It offers mobile, broadband, B2B communications and fixed-line telephony, with an industry-leading market presence in broadband and fixed-line services. KT Corp offers a plethora of digital transformation services and boasts a well-balanced portfolio of diverse subsidiaries focusing on media/content, financial services, real estate developments and commerce industries.
KT is leading the fourth industrial revolution with high-speed wireless networks and new ICT technology. It is increasingly focusing on digital health, AI, Big Data, cloud and robotics as its next leading businesses. This Zacks Rank #1 stock has gained 29.6% in the past year. The company has a long-term earnings growth expectation of 11.3%, with a VGM Score of A.
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