Nevertheless, América Móvil, S.A.B. de C.V. AMX, TIM S.A. TIMB and SK Telecom Co., Ltd. SKM 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 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.
Depleting Margins: 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, 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 #81, which places it in the top 33% 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, S&P 500
The Zacks Wireless Non-US industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has gained 51.7% over this period compared with the S&P 500’s and sector’s rise of 16.5% and 22.9%, 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 4.37X compared with the S&P 500’s 18.88X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 19.01X.
Over the past three years, the industry has traded as high as 5.52X and as low as 1.02X, with a median of 3.64X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Three Years)
3 Non-US Wireless Stocks to Buy
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 gained 38.2% in the past year. SK Telecom currently sports a Zacks Rank #1 (Strong Buy).
Price and Consensus: SKM
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. America Movil’s principal markets are Mexico and Brazil, the two largest economies in Latin America. The company’s biggest subsidiary, Telcel, is the largest wireless service provider in Mexico. The Zacks Consensus Estimate for its current-year and next-year earnings has been revised 7% and 8.2% upward, respectively, over the past year. The stock has gained 47.1% in the past year. It has a VGM Score of A. America Movil carries a Zacks Rank #2 (Buy) at present.
Price and Consensus: AMX
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 1.2 million, Tim has activated 5G service in about 1,000 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 has been revised 18.2% and 12.3% upward, respectively, over the past year. This Zacks Rank #2 stock has gained 76% in the past year and has a long-term earnings growth expectation of 18.7%.
Price and Consensus: TIMB
Zacks' Research Chief Names "Stock Most Likely to Double"
Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.
This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.
Free: See Our Top Stock And 4 Runners UpAmerica Movil, S.A.B. de C.V. Unsponsored ADR (AMX) : Free Stock Analysis Report
SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
TIM S.A. Sponsored ADR (TIMB) : Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
