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3 Wireless Stocks Set to Transcend Coronavirus Adversities
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The Zacks Wireless National industry appears to be mired in volatility in raw material prices and supply-chain disruptions due to the latent Sino-U.S. trade hostilities and the coronavirus-induced adversities that have affected the delivery schedule of most companies. Moreover, high capital expenditures for infrastructure upgrade and margin erosion due to price wars have dented the industry’s profitability.
Nevertheless, United States Cellular Corporation (USM - Free Report) , Gogo Inc. (GOGO - Free Report) and Cambium Networks Corporation (CMBM - Free Report) are likely to benefit in the long run from higher demand for scalable infrastructure for seamless connectivity amid wide proliferation of IoT, driven by faster pace of 5G deployment.
Industry Description
The Zacks Wireless National industry primarily comprises companies 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, multiprotocol label switching networking, data center and managed services, fiber optic long-haul network, 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 to where it is required and is most effective — whether in the cloud, the network or on their premises.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences in trusted, premium content environments. Some even provide film, television, streaming content, cable networks and publishing operations with significant media assets in their portfolio. Few industry participants further offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers. Some notable firms within the industry are AT&T Inc. (T - Free Report) , T-Mobile US, Inc. (TMUS - Free Report) and Verizon Communications Inc. (VZ - Free Report) .
What’s Shaping the Future of Wireless National Industry
Evolution to Software-Centric Model: The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, the companies are making significant investments to upgrade network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture. This has realigned the companies’ wireless network toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The companies are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization. Also, these firms are offering the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. Utilizing machine learning techniques and edge computing, these networks are likely to transform the way data-intensive images and videos are transferred across the industry on a real-time basis. All these efforts have helped firms in the industry to cater to the upsurge in data demand, with digital sustainability becoming the norm of the day as majority of the population is forced to work from home to avoid being exposed to the deadly virus.
Extensive Deployment of 5G & Fiber Optic Network: Most of the 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 an infrastructure upgrade. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. Further, leading firms within the industry are increasingly deploying next-generation 5G wireless residential broadband services in multiple U.S. markets. However, the momentum has been slightly hampered in some cities due to longer approval time for infrastructure setups, like small cells, along with other necessary permits and changes. In addition, remote working procedures due to social-distancing measures and temporary closures of permitting offices somewhat delayed the full-phased commercial 5G wireless services. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage, speeds and devices.
Focus on Streaming Content: The industry participants are taking a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and on-the-go experiences. 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 offer new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside home. In addition, some sector firms are reinventing online advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases. This has led to a faster turnaround of advertising campaigns, enabling marketers to access and understand the efficacy of these messages in weeks instead of months. These, in turn, are giving a new dimension to the business models.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #97, which places it at the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging 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. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
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 lagged the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year due to COVID-19 woes, despite underlying solid growth potential.
The industry has gained 2.7% over this period compared with the S&P 500 composite and the sector’s rise of 18.8% and 42.3%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 6.42X compared with the S&P 500’s 16.36X. It is also below the sector’s trailing-12-month EV/EBITDA of 15.82X.
Over the past five years, the industry has traded as high as 11.55X and as low as 5.27X and at the median of 6.62X, 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
United States Cellular Corporation: Based in Chicago, IL, U.S. Cellular is a leading wireless carrier in the United States in terms of customer count. The company has taken steps to accelerate subscriber additions and improve churn management, while adopting unlimited plans to enhance average revenue per user. The Zacks Consensus Estimate for current-year earnings has been revised 31.6% upward over the past year, while that for the next year is up 28.1% since July-end. It delivered a positive earnings surprise of 231.1%, on average, in the trailing four quarters. The company continues enhancing its advanced wireless services and connected solutions to better cater to consumer, business and government customer. In addition, it has partnered with Internet of Things America LLC to provide an innovative suite of IoT solutions for enterprise customers and rural communities across the country. The stock sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: USM
Gogo, Inc.: Founded in 1991 and headquartered in Chicago, IL, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divesture of the commercial in-flight connectivity division, the company has restructured its business model for more focus on its core operations. The stock has gained 81.7% in the past year compared with the industry’s growth of 2.6%. The Zacks Consensus Estimate for current-year earnings has been revised 38.5% upward over the past 90 days, while that for the next year is up 92.6% over the same time frame. It delivered a positive earnings surprise of 23.9%, on average, in the trailing four quarters. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. The stock carries a Zacks Rank #2 (Buy) and has a VGM Score of A.
Price and Consensus: GOGO
Cambium Networks Corporation: Based in Rolling Meadows, IL, Cambium offers maximum performance with minimal spectrum with an integrated network architecture spanning fixed wireless and Wi-Fi. The company is well positioned to benefit from a proprietary software and product ramp up, likely facilitating it to deliver a compelling combination of price, performance, and spectrum efficiency. The stock has gained 318.1% in the past year and has long-term earnings growth expectation of 20%. The Zacks Consensus Estimate for current-year earnings has been revised 212% upward since July-end, while that for the next year is up 92.6% over the same time frame. It delivered a positive earnings surprise of 137.8%, on average, in the trailing four quarters. The company is likely to benefit from a solid product pipeline, led by Wi-Fi, 60 GHz and 28 GHz platforms, as momentum in education, government and healthcare sectors likely offset softness in travel and hospitality verticals. In addition, government funding for broadband, additional spectrum availability and improvement in Asia-Pacific business are likely to act as tailwinds for this Zacks Rank #2 stock.
Price and Consensus: CMBM
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
Image: Bigstock
3 Wireless Stocks Set to Transcend Coronavirus Adversities
The Zacks Wireless National industry appears to be mired in volatility in raw material prices and supply-chain disruptions due to the latent Sino-U.S. trade hostilities and the coronavirus-induced adversities that have affected the delivery schedule of most companies. Moreover, high capital expenditures for infrastructure upgrade and margin erosion due to price wars have dented the industry’s profitability.
Nevertheless, United States Cellular Corporation (USM - Free Report) , Gogo Inc. (GOGO - Free Report) and Cambium Networks Corporation (CMBM - Free Report) are likely to benefit in the long run from higher demand for scalable infrastructure for seamless connectivity amid wide proliferation of IoT, driven by faster pace of 5G deployment.
Industry Description
The Zacks Wireless National industry primarily comprises companies 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, multiprotocol label switching networking, data center and managed services, fiber optic long-haul network, 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 to where it is required and is most effective — whether in the cloud, the network or on their premises.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences in trusted, premium content environments. Some even provide film, television, streaming content, cable networks and publishing operations with significant media assets in their portfolio. Few industry participants further offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers. Some notable firms within the industry are AT&T Inc. (T - Free Report) , T-Mobile US, Inc. (TMUS - Free Report) and Verizon Communications Inc. (VZ - Free Report) .
What’s Shaping the Future of Wireless National Industry
Evolution to Software-Centric Model: The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, the companies are making significant investments to upgrade network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture. This has realigned the companies’ wireless network toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The companies are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization. Also, these firms are offering the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. Utilizing machine learning techniques and edge computing, these networks are likely to transform the way data-intensive images and videos are transferred across the industry on a real-time basis. All these efforts have helped firms in the industry to cater to the upsurge in data demand, with digital sustainability becoming the norm of the day as majority of the population is forced to work from home to avoid being exposed to the deadly virus.
Extensive Deployment of 5G & Fiber Optic Network: Most of the 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 an infrastructure upgrade. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. Further, leading firms within the industry are increasingly deploying next-generation 5G wireless residential broadband services in multiple U.S. markets. However, the momentum has been slightly hampered in some cities due to longer approval time for infrastructure setups, like small cells, along with other necessary permits and changes. In addition, remote working procedures due to social-distancing measures and temporary closures of permitting offices somewhat delayed the full-phased commercial 5G wireless services. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage, speeds and devices.
Focus on Streaming Content: The industry participants are taking a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and on-the-go experiences. 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 offer new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside home. In addition, some sector firms are reinventing online advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases. This has led to a faster turnaround of advertising campaigns, enabling marketers to access and understand the efficacy of these messages in weeks instead of months. These, in turn, are giving a new dimension to the business models.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #97, which places it at the top 38% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates encouraging 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. The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.
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 lagged the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year due to COVID-19 woes, despite underlying solid growth potential.
The industry has gained 2.7% over this period compared with the S&P 500 composite and the sector’s rise of 18.8% and 42.3%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 6.42X compared with the S&P 500’s 16.36X. It is also below the sector’s trailing-12-month EV/EBITDA of 15.82X.
Over the past five years, the industry has traded as high as 11.55X and as low as 5.27X and at the median of 6.62X, 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
United States Cellular Corporation: Based in Chicago, IL, U.S. Cellular is a leading wireless carrier in the United States in terms of customer count. The company has taken steps to accelerate subscriber additions and improve churn management, while adopting unlimited plans to enhance average revenue per user. The Zacks Consensus Estimate for current-year earnings has been revised 31.6% upward over the past year, while that for the next year is up 28.1% since July-end. It delivered a positive earnings surprise of 231.1%, on average, in the trailing four quarters. The company continues enhancing its advanced wireless services and connected solutions to better cater to consumer, business and government customer. In addition, it has partnered with Internet of Things America LLC to provide an innovative suite of IoT solutions for enterprise customers and rural communities across the country. The stock sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: USM
Gogo, Inc.: Founded in 1991 and headquartered in Chicago, IL, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divesture of the commercial in-flight connectivity division, the company has restructured its business model for more focus on its core operations. The stock has gained 81.7% in the past year compared with the industry’s growth of 2.6%. The Zacks Consensus Estimate for current-year earnings has been revised 38.5% upward over the past 90 days, while that for the next year is up 92.6% over the same time frame. It delivered a positive earnings surprise of 23.9%, on average, in the trailing four quarters. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. The stock carries a Zacks Rank #2 (Buy) and has a VGM Score of A.
Price and Consensus: GOGO
Cambium Networks Corporation: Based in Rolling Meadows, IL, Cambium offers maximum performance with minimal spectrum with an integrated network architecture spanning fixed wireless and Wi-Fi. The company is well positioned to benefit from a proprietary software and product ramp up, likely facilitating it to deliver a compelling combination of price, performance, and spectrum efficiency. The stock has gained 318.1% in the past year and has long-term earnings growth expectation of 20%. The Zacks Consensus Estimate for current-year earnings has been revised 212% upward since July-end, while that for the next year is up 92.6% over the same time frame. It delivered a positive earnings surprise of 137.8%, on average, in the trailing four quarters. The company is likely to benefit from a solid product pipeline, led by Wi-Fi, 60 GHz and 28 GHz platforms, as momentum in education, government and healthcare sectors likely offset softness in travel and hospitality verticals. In addition, government funding for broadband, additional spectrum availability and improvement in Asia-Pacific business are likely to act as tailwinds for this Zacks Rank #2 stock.
Price and Consensus: CMBM
These Stocks Are Poised to Soar Past the Pandemic
The COVID-19 outbreak has shifted consumer behavior dramatically, and a handful of high-tech companies have stepped up to keep America running. Right now, investors in these companies have a shot at serious profits. For example, Zoom jumped 108.5% in less than 4 months while most other stocks were sinking.
Our research shows that 5 cutting-edge stocks could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of this decade, especially for those who get in early.
See the 5 high-tech stocks now>>