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3 Non-US Wireless Stocks That are Braving Industry Challenges
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Companies in the Zacks Wireless Non-US industry are finding it increasingly difficult to upgrade their network infrastructure and focus on providing high-quality and affordable services. These wireless carriers are weighed down by the growing churn rate and dwindling revenues with the disruptive rise of over-the-top service providers. These corporations also face high depreciation charges due to a large fixed asset base.
Nonetheless, companies like America Movil (AMX - Free Report) , Vodafone Group (VOD - Free Report) and Mobile TeleSystems continue to benefit from the deployment of advanced 4G LTE and 5G technologies and proliferation of data traffic.
Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers that are based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services, and prepaid and postpaid. They provide value-added services, such as the Internet of Things (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. These firms provide IT solutions and 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
Aggressive Competition to Persist: Telecom services typically show a weak correlation to macroeconomic factors as these are deemed to be necessities. Wireless operators have been facing severe challenges due to the growing churn rate and declining average revenue per user, along with the disruptive rise of over-the-top service providers in this competitive and dynamic industry. Price-sensitive competition for customer retention in the core business is expected to become more intense in the coming days. The companies follow an aggressive promotional strategy to increase penetration in the smartphone market. However, these efforts tend to affect profitability in the near term. Mobile phone operators also need to take measures to reduce costs and optimize business operations. Aggressive competition could limit their ability to attract and retain customers and affect operating and financial results. The pandemic is also causing short-term earnings dilution due to supply-chain disruptions.
High Infrastructure Costs Weigh on Margins: The telecommunications industry continues to undergo significant changes driven by technological advancements. However, one of the biggest challenges is the growing need for capital expenditure. Rising demand will put pressure on operators to invest more in scalable infrastructure and Internet-driven facilities that can support increased traffic and provide quality data services. With innovative technologies, the telecom companies’ quality of services has improved, but their profit margins have contracted. With millions of subscribers and various new products, operational support services have become more complex. The cost of handling these operations requires resources that increase overheads. Service providers need to upgrade their IT and connectivity infrastructures, as well as focus on providing data and voice services that are high quality, reliable and affordable. Security of the networks has become another priority for these companies. A huge capital outlay to expand network infrastructure for 5G mobile connectivity limits their bottom-line growth.
Market Saturation Remains a Concern: The wireless telecommunication services market is divided into seven key regions — North America, Latin America, Eastern Europe, Western Europe, Japan, the Asia-Pacific excluding Japan, and the Middle East and Africa. Markets in developed economies have almost reached saturation levels, preventing carriers from achieving the subscriber growth rates of their counterparts in emerging markets. So operators need to shift their focus from developed markets to emerging economies where there are greater opportunities to expand mobile network connections. Success in the wireless service business largely depends on technical superiority, quality of services and scalability. In a saturated wireless market, spectrum crunch has also become a major issue. Most of the operators are finding it difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of smart devices and burgeoning online mobile video streaming.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Wireless Non-US industry, which has 13 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #242, which places it in the bottom 5% 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 weak 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.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimate for the current year and the next have decreased 13.5% and 6.1%, respectively.
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 Underperforms Sector, S&P 500
The Zacks Wireless Non-US industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 7.7% over this period against the S&P 500’s rise of 28.3% and the sector’s gain of 28.3%.
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 5.84X compared with the S&P 500’s 15.87X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 15.75X.
Over the past five years, the industry has traded as high as 21.96X, as low as 3.85X with a median of 9.07X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Non-US Wireless Stocks to Watch
America Movil: Based in Mexico, America Movil provides telecommunication services in Latin America and globally. The company is working on developing alternatives to reap more benefits from its tower assets while increasing shareholders’ value and reducing debt. It offers customers a portfolio of value-added services and improved communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The company leveraged the investments it has made over the years in the latest technologies that enhanced the capacity and reach of its platforms, enabling it to handle significant traffic increases with no detriment to quality or speed. It is expected to benefit from a growing subscriber base and focused 5G efforts, going forward. The Zacks Consensus Estimate for its current-year earnings has been revised 9.9% upward over the past 30 days. The stock has gained 30.4% in the past year. AMX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AMX
Vodafone Group: Based in the United Kingdom, Vodafone Group engages in telecommunication services in Europe and internationally. The company operates mobile and fixed networks in 21 countries and partners with mobile networks in 49 more. Its M-Pesa technology platform in Africa enables more than 48 million people to benefit from access to mobile payments and financial services. The company has about 315 million mobile customers, 28 million fixed broadband customers, 22 million TV customers and connects more than 123 million IoT devices. The consensus estimate for current-year earnings has been stable over the past seven days. The stock, however, has lost 14.8% in the past year. VOD is a Zacks Rank #3 stock.
Price and Consensus: VOD
Mobile TeleSystems: Headquartered in Moscow, Mobile TeleSystems is the largest mobile operator and a leading provider of media and digital services in Russia. It provides cloud computing services, data analysis tools, cybersecurity systems and intelligent IoT solutions for B2B clients. It also offers banking and e-commerce services. It is benefiting from solid performance in core telecom services as well as contributions from certain segments beyond connectivity. The company continues to execute at pace on its long-term growth strategy. The consensus estimate for current-year earnings has been revised upward by 3.9% over the past 60 days. The stock has declined 12.8% in the past year. MBT carries a Zacks Rank #2 (Buy).
Price and Consensus: MBT
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3 Non-US Wireless Stocks That are Braving Industry Challenges
Companies in the Zacks Wireless Non-US industry are finding it increasingly difficult to upgrade their network infrastructure and focus on providing high-quality and affordable services. These wireless carriers are weighed down by the growing churn rate and dwindling revenues with the disruptive rise of over-the-top service providers. These corporations also face high depreciation charges due to a large fixed asset base.
Nonetheless, companies like America Movil (AMX - Free Report) , Vodafone Group (VOD - Free Report) and Mobile TeleSystems continue to benefit from the deployment of advanced 4G LTE and 5G technologies and proliferation of data traffic.
Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers that are based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services, and prepaid and postpaid. They provide value-added services, such as the Internet of Things (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. These firms provide IT solutions and 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
Aggressive Competition to Persist: Telecom services typically show a weak correlation to macroeconomic factors as these are deemed to be necessities. Wireless operators have been facing severe challenges due to the growing churn rate and declining average revenue per user, along with the disruptive rise of over-the-top service providers in this competitive and dynamic industry. Price-sensitive competition for customer retention in the core business is expected to become more intense in the coming days. The companies follow an aggressive promotional strategy to increase penetration in the smartphone market. However, these efforts tend to affect profitability in the near term. Mobile phone operators also need to take measures to reduce costs and optimize business operations. Aggressive competition could limit their ability to attract and retain customers and affect operating and financial results. The pandemic is also causing short-term earnings dilution due to supply-chain disruptions.
High Infrastructure Costs Weigh on Margins: The telecommunications industry continues to undergo significant changes driven by technological advancements. However, one of the biggest challenges is the growing need for capital expenditure. Rising demand will put pressure on operators to invest more in scalable infrastructure and Internet-driven facilities that can support increased traffic and provide quality data services. With innovative technologies, the telecom companies’ quality of services has improved, but their profit margins have contracted. With millions of subscribers and various new products, operational support services have become more complex. The cost of handling these operations requires resources that increase overheads. Service providers need to upgrade their IT and connectivity infrastructures, as well as focus on providing data and voice services that are high quality, reliable and affordable. Security of the networks has become another priority for these companies. A huge capital outlay to expand network infrastructure for 5G mobile connectivity limits their bottom-line growth.
Market Saturation Remains a Concern: The wireless telecommunication services market is divided into seven key regions — North America, Latin America, Eastern Europe, Western Europe, Japan, the Asia-Pacific excluding Japan, and the Middle East and Africa. Markets in developed economies have almost reached saturation levels, preventing carriers from achieving the subscriber growth rates of their counterparts in emerging markets. So operators need to shift their focus from developed markets to emerging economies where there are greater opportunities to expand mobile network connections. Success in the wireless service business largely depends on technical superiority, quality of services and scalability. In a saturated wireless market, spectrum crunch has also become a major issue. Most of the operators are finding it difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of smart devices and burgeoning online mobile video streaming.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Wireless Non-US industry, which has 13 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #242, which places it in the bottom 5% 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 weak 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.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Over the past year, the industry’s earnings estimate for the current year and the next have decreased 13.5% and 6.1%, respectively.
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 Underperforms Sector, S&P 500
The Zacks Wireless Non-US industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 7.7% over this period against the S&P 500’s rise of 28.3% and the sector’s gain of 28.3%.
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 5.84X compared with the S&P 500’s 15.87X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 15.75X.
Over the past five years, the industry has traded as high as 21.96X, as low as 3.85X with a median of 9.07X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Non-US Wireless Stocks to Watch
America Movil: Based in Mexico, America Movil provides telecommunication services in Latin America and globally. The company is working on developing alternatives to reap more benefits from its tower assets while increasing shareholders’ value and reducing debt. It offers customers a portfolio of value-added services and improved communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The company leveraged the investments it has made over the years in the latest technologies that enhanced the capacity and reach of its platforms, enabling it to handle significant traffic increases with no detriment to quality or speed. It is expected to benefit from a growing subscriber base and focused 5G efforts, going forward. The Zacks Consensus Estimate for its current-year earnings has been revised 9.9% upward over the past 30 days. The stock has gained 30.4% in the past year. AMX currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AMX
Vodafone Group: Based in the United Kingdom, Vodafone Group engages in telecommunication services in Europe and internationally. The company operates mobile and fixed networks in 21 countries and partners with mobile networks in 49 more. Its M-Pesa technology platform in Africa enables more than 48 million people to benefit from access to mobile payments and financial services. The company has about 315 million mobile customers, 28 million fixed broadband customers, 22 million TV customers and connects more than 123 million IoT devices. The consensus estimate for current-year earnings has been stable over the past seven days. The stock, however, has lost 14.8% in the past year. VOD is a Zacks Rank #3 stock.
Price and Consensus: VOD
Mobile TeleSystems: Headquartered in Moscow, Mobile TeleSystems is the largest mobile operator and a leading provider of media and digital services in Russia. It provides cloud computing services, data analysis tools, cybersecurity systems and intelligent IoT solutions for B2B clients. It also offers banking and e-commerce services. It is benefiting from solid performance in core telecom services as well as contributions from certain segments beyond connectivity. The company continues to execute at pace on its long-term growth strategy. The consensus estimate for current-year earnings has been revised upward by 3.9% over the past 60 days. The stock has declined 12.8% in the past year. MBT carries a Zacks Rank #2 (Buy).
Price and Consensus: MBT