The Zacks Wireless Non-US industry appears to be on a cruise mode driven by healthy demand trends to stay connected at the forefront of the digital edge. However, high capital expenditures 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, Orange S.A., TIM S.A. and PLDT Inc. 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 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.
Inflated 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.
Holistic Growth Focus: 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 Trends
The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #50, which places it in the top 20% 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 3.8% over this period against the S&P 500's and sector's rise of 20.6% and 45.3%, 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 5.91X compared with the S&P 500's 13.85X. It is also trading below the sector's trailing 12-month EV/EBITDA of 13.13X.
Over the past five years, the industry has traded as high as 12.33X and as low as 1.43X, with a median of 6.03X.
3 Non-US Wireless Stocks to Watch
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 "Lead the future" strategic plan, which aims to capitalize on network excellence to reinforce its leadership in service quality.
The stock has a VGM Score of A. It has gained 7.1% in the past year and has a long-term earnings growth expectation of 16.6%. The Zacks Consensus Estimate for its current-year earnings has been revised 4.2% upward since January 2023. It carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
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 than 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. Tim has a VGM Score of A. The Zacks Consensus Estimate for its current-year and next-year earnings have been revised 87.3% and 34% upward, respectively, over the past year. This Zacks Rank #2 stock has gained 52.1% in the past year and has a long-term earnings growth expectation of 23.2%.
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 B. The stock has a long-term earnings growth expectation of 4.8%. PLDT sports a Zacks Rank #1.
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