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Zacks Industry Outlook Highlights Juniper Networks, Viasat and InterDigital
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For Immediate Release
Chicago, IL – October 27, 2022 – Today, Zacks Equity Research discusses Juniper Networks, Inc. (JNPR - Free Report) , Viasat, Inc. (VSAT - Free Report) and InterDigital, Inc. (IDCC - Free Report) .
The Zacks Wireless Equipment industry appears well poised to gain from healthy demand trends amid fading supply chain adversities with the gradual revival in post-pandemic market conditions and a faster pace of 5G deployment. However, large-scale investments to support the transition to 5G and inflated raw material costs amid a challenging macroeconomic environment are likely to erode margins.
Nevertheless, Juniper Networks, Inc., Viasat, Inc. and InterDigital, Inc. are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products with a vast proliferation of IoT and a gradual shift to cloud services.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing, and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Fiber Optic Densification & Faster 5G Rollout: With the exponential growth of mobile broadband traffic and home Internet solutions, demand for advanced networking architecture has increased manifold. This has forced service providers to spend more on routers and switches to upgrade their networks and support the surge in home data traffic. To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services.
Moreover, a faster pace of 5G deployment is expected to augment the scalability, security and universal mobility of the telecommunications industry and propel the wide proliferation of IoT. Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds.
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.
The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Eroding Profitability: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, the Russian invasion of Ukraine and pricing pressure in early 5G deals.
Uncertainty regarding chip shortage and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays, and shortages of other raw materials are likely to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to affect the delivery schedule and escalate production costs.
High technological obsolescence of most products has also escalated operating costs with steady investments in R&D. However, with various administrative and federal support along with the ramp-up in production facilities for chip manufacturing, the demand-supply imbalance is likely to ease gradually in the upcoming quarters.
Wide Proliferation of Cloud Networking Solutions: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion, as well as additional services to maintain, monitor and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #31, which places it in the top 12% 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. While the industry's earnings estimates for the current year have increased 17% since October 2021, the same for 2023 has improved a stellar 283.3% over the past year.
Before we present a few wireless equipment 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 Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has lost 16.9% over this period compared with the S&P 500 and sector's decline of 17.8% and 33.1%, respectively.
Industry's Current Valuation
On the basis of 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 16.31X compared with the S&P 500's 11.64X. It is also trading above the sector's trailing-12-month EV/EBITDA of 8.51X.
Over the past five years, the industry has traded as high as 37.5X and as low as 11.6X and at the median of 18.91X.
3 Wireless Equipment Stocks to Keep a Close Eye On
Juniper: Based in Sunnyvale, CA, Juniper is a leading provider of networking solutions and communication devices. The company develops, designs and sells products that help to build network infrastructure used for services and applications based on a single Internet protocol network worldwide.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth expectation of 7.7%. It is witnessing encouraging trends across various areas of its business, including solid momentum in Mist Systems and strength in the services organization.
Juniper has made significant changes to the go-to-market structure to better align sales strategies with each of its core customer verticals. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
Viasat: Headquartered in Carlsbad, CA, Viasat designs, develops and markets advanced digital satellite telecommunications and other wireless networking and signal processing equipment. The company serves its high-bandwidth, high-performance communications solutions to the public as well as military, enterprises and government enterprises.
The Zacks Consensus Estimate for current fiscal earnings has been revised 40% upward since October 2021, while that for the next fiscal is up 64.7% since March 2022. This Zacks Rank #2 stock enjoys a leading position in the satellite and wireless communications market. The company is ramping up investments to develop its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2.
The ViaSat-3 platform will help form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service. Further, the rising adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to the growth of the Satellite Services business.
InterDigital: Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular as well as wireless 3G, 4G and IEEE 802-related products and networks. It has a long-term earnings growth expectation of 25% and delivered an earnings surprise of 81.9%, on average, in the trailing four quarters.
Earnings estimates for the current year for this Zacks Rank #1 stock have moved up 7% since April 2021. InterDigital's global footprint, diversified product portfolio and ability to penetrate in different markets are impressive. The addition of technologies related to sensors, user interface and video to its offerings are likely to drive considerable value, given the massive size of the market it licenses.
Why Haven't You Looked at Zacks' Top Stocks?
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Juniper Networks, Viasat and InterDigital
For Immediate Release
Chicago, IL – October 27, 2022 – Today, Zacks Equity Research discusses Juniper Networks, Inc. (JNPR - Free Report) , Viasat, Inc. (VSAT - Free Report) and InterDigital, Inc. (IDCC - Free Report) .
Industry: Wireless
Link:https://www.zacks.com/commentary/1997312/3-wireless-stocks-set-to-ride-on-fiber-densification-5g-rollout
The Zacks Wireless Equipment industry appears well poised to gain from healthy demand trends amid fading supply chain adversities with the gradual revival in post-pandemic market conditions and a faster pace of 5G deployment. However, large-scale investments to support the transition to 5G and inflated raw material costs amid a challenging macroeconomic environment are likely to erode margins.
Nevertheless, Juniper Networks, Inc., Viasat, Inc. and InterDigital, Inc. are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products with a vast proliferation of IoT and a gradual shift to cloud services.
Industry Description
The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing, and end-to-end enterprise mobility solutions.
The firms also provide a broad range of routing, switching and security products, video surveillance and machine-to-machine communication components that secure VPN appliances, enable intrusion detection and thwart data theft. Some firms even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry.
What's Shaping the Future of the Wireless Equipment Industry?
Fiber Optic Densification & Faster 5G Rollout: With the exponential growth of mobile broadband traffic and home Internet solutions, demand for advanced networking architecture has increased manifold. This has forced service providers to spend more on routers and switches to upgrade their networks and support the surge in home data traffic. To maintain superior performance standards, there is a continuous need for network tuning and optimization, which creates demand for state-of-the-art wireless products and services.
Moreover, a faster pace of 5G deployment is expected to augment the scalability, security and universal mobility of the telecommunications industry and propel the wide proliferation of IoT. Expansion of fiber optic networks by carriers to support their 4G LTE and 5G wireless standards, as well as wireline connections, are likely to act as tailwinds.
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.
The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments.
Eroding Profitability: Although higher infrastructure investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by the high cost of first-generation 5G products, profitability challenges in China, the Russian invasion of Ukraine and pricing pressure in early 5G deals.
Uncertainty regarding chip shortage and supply-chain disruptions leading to a dearth of essential fiber materials, shipping delays, and shortages of other raw materials are likely to affect the expansion and rollout of new broadband networks. Extended lead times for basic components are also likely to affect the delivery schedule and escalate production costs.
High technological obsolescence of most products has also escalated operating costs with steady investments in R&D. However, with various administrative and federal support along with the ramp-up in production facilities for chip manufacturing, the demand-supply imbalance is likely to ease gradually in the upcoming quarters.
Wide Proliferation of Cloud Networking Solutions: The majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion, as well as additional services to maintain, monitor and manage these complex networks and solutions.
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. The wide proliferation of cloud networking solutions is further resulting in increased storage and computing on a virtual plane. As both consumers and enterprises use the network, there is tremendous demand for quality networking equipment.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless Equipment industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #31, which places it in the top 12% 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. While the industry's earnings estimates for the current year have increased 17% since October 2021, the same for 2023 has improved a stellar 283.3% over the past year.
Before we present a few wireless equipment 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 Equipment industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has lost 16.9% over this period compared with the S&P 500 and sector's decline of 17.8% and 33.1%, respectively.
Industry's Current Valuation
On the basis of 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 16.31X compared with the S&P 500's 11.64X. It is also trading above the sector's trailing-12-month EV/EBITDA of 8.51X.
Over the past five years, the industry has traded as high as 37.5X and as low as 11.6X and at the median of 18.91X.
3 Wireless Equipment Stocks to Keep a Close Eye On
Juniper: Based in Sunnyvale, CA, Juniper is a leading provider of networking solutions and communication devices. The company develops, designs and sells products that help to build network infrastructure used for services and applications based on a single Internet protocol network worldwide.
This Zacks Rank #2 (Buy) stock has a long-term earnings growth expectation of 7.7%. It is witnessing encouraging trends across various areas of its business, including solid momentum in Mist Systems and strength in the services organization.
Juniper has made significant changes to the go-to-market structure to better align sales strategies with each of its core customer verticals. The company is set to capitalize on the increasing demand for data center virtualization, cloud computing and mobile traffic packet/optical convergence.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Viasat: Headquartered in Carlsbad, CA, Viasat designs, develops and markets advanced digital satellite telecommunications and other wireless networking and signal processing equipment. The company serves its high-bandwidth, high-performance communications solutions to the public as well as military, enterprises and government enterprises.
The Zacks Consensus Estimate for current fiscal earnings has been revised 40% upward since October 2021, while that for the next fiscal is up 64.7% since March 2022. This Zacks Rank #2 stock enjoys a leading position in the satellite and wireless communications market. The company is ramping up investments to develop its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2.
The ViaSat-3 platform will help form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service. Further, the rising adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to the growth of the Satellite Services business.
InterDigital: Headquartered in Wilmington, DE, InterDigital is a pioneer in advanced mobile technologies that enables wireless communications and capabilities. The company engages in designing and developing a wide range of advanced technology solutions, which are used in digital cellular as well as wireless 3G, 4G and IEEE 802-related products and networks. It has a long-term earnings growth expectation of 25% and delivered an earnings surprise of 81.9%, on average, in the trailing four quarters.
Earnings estimates for the current year for this Zacks Rank #1 stock have moved up 7% since April 2021. InterDigital's global footprint, diversified product portfolio and ability to penetrate in different markets are impressive. The addition of technologies related to sensors, user interface and video to its offerings are likely to drive considerable value, given the massive size of the market it licenses.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.