Amid this backdrop, Verizon Communications Inc. VZ, AT&T Inc. T and Liberty Latin America Ltd. LILA are likely to gain from higher demand for scalable infrastructure for sustainable networks with a wide proliferation of the Internet of Things (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?
Waning Profit Margins: 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. Companies are making significant investments to upgrade their network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture, which is affecting their profitability.
Thriving 5G & Fiber Ecosystem: Most industry participants are deploying the latest 4G LTE 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 4G LTE and 5G wireless standards. 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 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.
Volatility in Raw Material Prices: High raw material prices due to Middle East tensions, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have adversely impacted the operational schedules of various firms. In addition, the imposition of tariffs and reciprocal tariffs has affected the supply chain mechanism. The demand-supply imbalance has crippled operations and largely affected profitability due to inflated equipment prices. Wireless operators face 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, affecting operating and financial results.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #166, which places it in the bottom 32% 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 grim 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 Lags S&P 500, Sector
The Zacks Wireless National industry has underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has declined 7.8% over this period against the S&P 500 and the sector’s growth of 15.9% and 21.9%, 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 9.03X compared with the S&P 500’s 17.21X. It is also below the sector’s trailing 12-month EV/EBITDA of 19.40X.
Over the past five years, the industry has traded as high as 9.42X, as low as 6.33X and at the median of 7.51X, 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
Verizon: Based in New York, Verizon offers communication services in the form of local phone service, long-distance calls, wireless and data services. With the ramp-up of 5G service across the country, the company is likely to retain its lead in promulgating 5G mobile networks nationwide by using virtualized machines, advanced levels of operational automation and adaptability. Verizon has introduced premium unlimited plans that are translating into significant 5G adoption and fixed wireless broadband momentum. The company is aiming to deploy an extensive 5G Ultra Wideband network across the country, driven by a relentless focus on 5G mobility, nationwide broadband and mobile edge compute and business solutions. Verizon appears to be at a critical inflection point and remains focused on making necessary capital expenditures due to the continued expansion of 5G mmWave in new and existing markets, the densification of the 4G LTE wireless network to cater to huge traffic demands across multiple verticals and the continued deployment of the fiber infrastructure. The stock has a long-term earnings growth expectation of 4.8% and delivered an earnings surprise of 2.8%, on average, in the trailing four quarters. It has a VGM Score of A. The stock has gained 20.8% in the past year. Verizon currently carries a Zacks Rank #3 (Hold).
Price and Consensus: VZ
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 increased fiber convergence with accelerated growth in fiber customers in areas where it has solid wireless services. With a customer-centric business model, AT&T is riding on the increased deployment of mid-band spectrum and greater fiber densification. The company's commitment to closing the digital divide underscores its dedication to fostering inclusive connectivity and driving socio-economic progress as the digital landscape evolves. The stock has gained 12.2% over the past year. The stock has a long-term earnings growth expectation of 11.7% and delivered an earnings surprise of 3.8%, on average, in the trailing four quarters. This Zacks Rank #3 company has a VGM Score of B.
Price and Consensus: T
Liberty Latin America: Based in Denver, CO, Liberty Latin America is a communications firm with operations in Chile, Puerto Rico, the Caribbean and other parts of Latin America. Liberty Latin America is poised to benefit from an end-to-end communications platform, leveraging the power of a sub-sea network, fixed-line networks & mobile platforms. With an expanded regional footprint and upgraded infrastructure facilities, it is likely to deliver enterprise-grade connectivity, data center, hosting and managed solutions and IT services. The stock has gained 11.6% over the past year. This Zacks Rank #2 (Buy) firm has a VGM Score of B.
Price and Consensus: LILA
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. They include
Stock #1: A Disruptive Force with Notable Growth and Resilience
Stock #2: Bullish Signs Signaling to Buy the Dip
Stock #3: One of the Most Compelling Investments in the Market
Stock #4: Leader In a Red-Hot Industry Poised for Growth
Stock #5: Modern Omni-Channel Platform Coiled to Spring
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor. While not all picks can be winners, previous recommendations have soared +171%, +209% and +232%.
See Our Newest 5 Stocks Set to Double Picks >>Verizon Communications Inc. (VZ) : Free Stock Analysis Report
AT&T Inc. (T) : Free Stock Analysis Report
Liberty Latin America Ltd. (LILA) : 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.
