Amid this backdrop, Array Digital Infrastructure, Inc. AD, Optimum Communications, Inc. OPTU and AT&T Inc. T are likely to gain from higher demand for sustainable networks with a wide proliferation of the IoT, wireless traction and solid broadband momentum.
Industry Description
The Zacks Wireless National industry primarily comprises firms that provide a comprehensive range of communication services and business solutions. These include wireless, wireline, local exchange, long-distance calls, data/broadband and Internet, video, managed networking, messaging, wholesale and cloud-based services to retail consumers. The firms within the industry also offer IP-based voice and data services, targeted advertising, television, streaming content, cable networks and publishing operations, multiprotocol label switching networking, fiber optic long-haul networks and hosting and communications systems to businesses and government agencies. In addition, the firms provide edge computing services that allow businesses to route application-specific traffic where required and are most effective, whether in the cloud, the network, or on their premises.
What's Shaping the Future of the Wireless National Industry?
Thriving 5G & Fiber Ecosystem: Most industry participants are deploying the latest advanced technologies to deliver higher peak data speeds and capacity, driven by customer-focused planning, disciplined engineering and investments for infrastructure upgrades. The companies are also expanding their fiber optic networks to support 5G wireless standards and upcoming 6G technology. Further, leading firms within the industry have been deploying the C-Band spectrum to gain additional coverage. These mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in rural and urban areas compared with mmWave. With low latency and increased bandwidth, business enterprises are increasingly embracing the exciting possibilities offered by artificial intelligence (AI) and the IoT via the real-time transfer of mobile data. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.
Profitability on the Wane: Increased infrastructure spending for network upgrades has largely compromised short-term margins. Aggressive promotional expenses, lucrative discounts and the adoption of several low-priced service plans to attract and retain customers are eroding profits. A steady decline in linear TV subscribers and legacy services due to a challenging macroeconomic environment and high inflation adds to the margin woes. Consequently, the industry firms are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities through significant investments, which are affecting profitability.
Software-Centric Network Rationalization: The industry participants are realigning their wireless networks toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The industry players are focused on bringing improved operational efficiencies through network simplification and rationalization, boosting end-to-end provisioning time and driving standardization. Moreover, the firms are offering a variety of pathways for delivering services through a combination of network-based video transcoding, packaging, storage and compression technologies to provide new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside the home.
Volatile Raw Material Prices: High raw material prices due to the Iran war, shipping restrictions in the Strait of Hormuz, soaring energy prices, 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.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #92, which places it in the top 37% 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 rosy prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few wireless national stocks that are well-positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500, Sector
The Zacks Wireless National industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has gained 52.3% over this period compared with the S&P 500 and the sector’s growth of 21.2% and 25.9%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 20.28X compared with the S&P 500’s 17.28X. It is also above the sector’s trailing 12-month EV/EBITDA of 20.1X.
Over the past five years, the industry has traded as high as 27X, as low as 6.41X and at the median of 7.79X, as the chart below shows.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Wireless National Stocks to Keep a Close Eye on
Array Digital: Headquartered in Chicago, IL, Array Digital (previously known as United States Cellular Corporation) is a leading full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses. The company is benefiting from solid user engagement in its fixed wireless business and an improvement in tower rental revenues. The geographical diversity and well-balanced presence across various major wireless carriers highlight the robustness of its tower rental portfolio. Management's efforts to enhance operational efficiency and drive cost optimization across its operations have significantly boosted profitability despite a challenging competitive environment. This firm delivered an earnings surprise of 70.8%, on average, in the trailing four quarters. Array Digital currently carries a Zacks Rank #2 (Buy).
Price and Consensus: AD
Optimum: Headquartered in Long Island City, NY, Optimum (previously known as Altice USA, Inc.) is one of the largest broadband communications and video services providers in the United States. The company is expanding the use of AI-enabled automation and digital tools to improve customer experience and operating efficiency. Management remains focused on simplifying pricing, improving convergence and expanding value-added services to improve customer lifetime value and stabilize broadband trends. The company also continues to prioritize new broadband customer additions and selective fiber expansion to drive long-term returns. This Zacks Rank #2 firm has a VGM Score of B.
Price and Consensus: OPTU
AT&T: Based in Dallas, TX, AT&T is the second largest wireless service provider in North America and one of the world’s leading communications service carriers. It offers a wide range of communication and business solutions that include wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services. AT&T is benefiting from rising demand for mobile data and continues to build a nationwide 5G network using a mix of millimeter wave spectrum in dense pockets and mid- and low-band holdings in suburban and rural areas. The planned EchoStar 600 MHz spectrum acquisition is intended to strengthen low-band uplink capacity. Management also pointed to nationwide Multi-Access Edge Computing partnerships and dense fiber backhaul as enablers for latency-sensitive edge workloads, with private 5G and edge pilots underpinning enterprise interest in AI use cases. This Zacks Rank #3 (Hold) company has a long-term earnings growth expectation of 10.5% and delivered an earnings surprise of 6.3%, on average, in the trailing four quarters. It has a VGM Score of A.
Price and Consensus: T
Beyond Nvidia: AI's Second Wave Is Here
The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.
See Stocks Now >>AT&T Inc. (T) : Free Stock Analysis Report
Array Digital Infrastructure Inc. (AD) : Free Stock Analysis Report
Optimum Communications, Inc. (OPTU) : 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.
