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3 Wireless Non-US Stocks Likely to Ride on the 5G Bandwagon
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The Zacks Wireless Non-US industry appears to be mired in continued supply chain disruptions and chip shortage despite a gradual revival in post-pandemic market conditions and a faster pace of 5G deployment. In addition, large-scale investments for infrastructure upgrades to support the transition to 5G, high inflationary pressures and a challenging macroeconomic environment have eroded the sector's profitability.
Nevertheless, América Móvil, S.A.B. de C.V. (AMX - Free Report) , Orange S.A. (ORAN - Free Report) and Ceragon Networks Ltd. (CRNT - Free Report) might benefit in the long run on significant long-term growth opportunities and rising demand for scalable infrastructure for seamless connectivity with the wide proliferation of IoT.
Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services and prepaid and postpaid. The firms provide value-added services, such as the 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. The firms provide IT solutions, 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
Demand-Supply Imbalance: With the exponential growth of mobile broadband traffic and home Internet solutions owing to the increasing work-from-home trend, user demand for coverage speed and quality has increased manifold. This has resulted in a massive demand for advanced networking architecture, forcing service providers to upgrade their networks to support the surge in home data traffic. Further, there is a continuous need for network tuning and optimization to maintain superior performance standards, creating demand for state-of-the-art wireless products and services. However, uncertainty regarding the continued chip shortage and supply-chain disruptions extending beyond semiconductors have crippled the manufacturing operations of most firms, leading to curtailed production schedules. This has led to an acute demand-supply imbalance, as the industry faces a dearth of essential fiber materials, shipping delays and shortages of containers and other raw materials, affecting the expansion and rollout of new broadband networks. Extended lead times for basic components have negatively impacted the delivery schedules and escalated costs. Moreover, raw material prices have risen significantly owing to economic uncertainty driven by the Russia-Ukraine war, soft market conditions in China and coronavirus-led adversities, affecting the short-term profitability of most firms.
Margin Woes Persist: Telecom services show a weak correlation to macroeconomic factors as these are considered necessities. Wireless operators have been facing challenges due to the churn rate and 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. 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 convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. Although these investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised.
Scalable Infrastructure Demand Gains Precedence: In addition to delivering mission-critical communication services, the companies are taking steps to accelerate subscriber additions and improve churn management. They aim to offer an exceptional wireless experience to consumers and business customers by providing superior network connectivity. The wireless carriers are expanding their footprint while adopting unlimited plans to enhance average revenue per user. They are progressing on strategic objectives, growing their customer base by increasing handset connections and customer loyalty to boost revenues and profitability.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Wireless Non-US industry, which has 14 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #133, which places it in the bottom 47% 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 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.
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 Outperforms Sector, S&P 500
The Zacks Wireless Non-US industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 12.2% over this period compared with the S&P 500’s and sector’s decline of 16.8% and 33.4%, respectively.
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 1.74X compared with the S&P 500’s 12.02X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 8.85X.
Over the past five years, the industry has traded as high as 22.76X, as low as 1.36X, with a median of 7.01X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio
3 Non-US Wireless Stocks to Keep a Close Eye on
América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The company has launched 5G network in Austria. America Movil has also launched 4.5G networks in Brazil, Mexico and Dominican Republic that can deliver speed up to 10 times faster than 4G to allow subscribers experience voice and video in high definition. The Zacks Consensus Estimate for its current-year earnings has been revised 9.6% upward since February 2022. The stock has gained 14.9% in the past year and has a long-term earnings growth expectation of 8.5%. America Movil currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AMX
Orange: Headquartered in Paris, Orange is one of the world’s leading telecommunications carriers with a presence in 26 countries. The company is also a leading provider of global IT and telecommunication services to multinational firms under the brand Orange Business Services. It has partnered with Move Capital to invest in the ‘Move Capital I’ venture capital fund that will empower Orange Business Services to become an integral stakeholder with a recognized panel of European technology companies. The combined synergies created from this partnership will allow European tech companies to reinforce their competitiveness and fortify Orange’s leadership in the region. The stock has a VGM Score of A. Orange carries a Zacks Rank #3 (Hold).
Price and Consensus: ORAN
Ceragon Networks: Headquartered in Rosh HaAyin, Israel, Ceragon provides wireless backhaul and fronthaul solutions that enable cellular operators and other wireless service providers to increase operational efficiency. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/distributed cells and the core of the service provider's network. It offers highly reliable, fast-to-deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate and labor resources. Ceragon delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization. The stock has a long-term earnings growth expectation of 15%. It sports a Zacks Rank #1.
Price and Consensus: CRNT
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3 Wireless Non-US Stocks Likely to Ride on the 5G Bandwagon
The Zacks Wireless Non-US industry appears to be mired in continued supply chain disruptions and chip shortage despite a gradual revival in post-pandemic market conditions and a faster pace of 5G deployment. In addition, large-scale investments for infrastructure upgrades to support the transition to 5G, high inflationary pressures and a challenging macroeconomic environment have eroded the sector's profitability.
Nevertheless, América Móvil, S.A.B. de C.V. (AMX - Free Report) , Orange S.A. (ORAN - Free Report) and Ceragon Networks Ltd. (CRNT - Free Report) might benefit in the long run on significant long-term growth opportunities and rising demand for scalable infrastructure for seamless connectivity with the wide proliferation of IoT.
Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services and prepaid and postpaid. The firms provide value-added services, such as the 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. The firms provide IT solutions, 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
Demand-Supply Imbalance: With the exponential growth of mobile broadband traffic and home Internet solutions owing to the increasing work-from-home trend, user demand for coverage speed and quality has increased manifold. This has resulted in a massive demand for advanced networking architecture, forcing service providers to upgrade their networks to support the surge in home data traffic. Further, there is a continuous need for network tuning and optimization to maintain superior performance standards, creating demand for state-of-the-art wireless products and services. However, uncertainty regarding the continued chip shortage and supply-chain disruptions extending beyond semiconductors have crippled the manufacturing operations of most firms, leading to curtailed production schedules. This has led to an acute demand-supply imbalance, as the industry faces a dearth of essential fiber materials, shipping delays and shortages of containers and other raw materials, affecting the expansion and rollout of new broadband networks. Extended lead times for basic components have negatively impacted the delivery schedules and escalated costs. Moreover, raw material prices have risen significantly owing to economic uncertainty driven by the Russia-Ukraine war, soft market conditions in China and coronavirus-led adversities, affecting the short-term profitability of most firms.
Margin Woes Persist: Telecom services show a weak correlation to macroeconomic factors as these are considered necessities. Wireless operators have been facing challenges due to the churn rate and 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. 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 convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. Although these investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised.
Scalable Infrastructure Demand Gains Precedence: In addition to delivering mission-critical communication services, the companies are taking steps to accelerate subscriber additions and improve churn management. They aim to offer an exceptional wireless experience to consumers and business customers by providing superior network connectivity. The wireless carriers are expanding their footprint while adopting unlimited plans to enhance average revenue per user. They are progressing on strategic objectives, growing their customer base by increasing handset connections and customer loyalty to boost revenues and profitability.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Wireless Non-US industry, which has 14 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #133, which places it in the bottom 47% 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 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.
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 Outperforms Sector, S&P 500
The Zacks Wireless Non-US industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 12.2% over this period compared with the S&P 500’s and sector’s decline of 16.8% and 33.4%, respectively.
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 1.74X compared with the S&P 500’s 12.02X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 8.85X.
Over the past five years, the industry has traded as high as 22.76X, as low as 1.36X, with a median of 7.01X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio
3 Non-US Wireless Stocks to Keep a Close Eye on
América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The company has launched 5G network in Austria. America Movil has also launched 4.5G networks in Brazil, Mexico and Dominican Republic that can deliver speed up to 10 times faster than 4G to allow subscribers experience voice and video in high definition. The Zacks Consensus Estimate for its current-year earnings has been revised 9.6% upward since February 2022. The stock has gained 14.9% in the past year and has a long-term earnings growth expectation of 8.5%. America Movil currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: AMX
Orange: Headquartered in Paris, Orange is one of the world’s leading telecommunications carriers with a presence in 26 countries. The company is also a leading provider of global IT and telecommunication services to multinational firms under the brand Orange Business Services. It has partnered with Move Capital to invest in the ‘Move Capital I’ venture capital fund that will empower Orange Business Services to become an integral stakeholder with a recognized panel of European technology companies. The combined synergies created from this partnership will allow European tech companies to reinforce their competitiveness and fortify Orange’s leadership in the region. The stock has a VGM Score of A. Orange carries a Zacks Rank #3 (Hold).
Price and Consensus: ORAN
Ceragon Networks: Headquartered in Rosh HaAyin, Israel, Ceragon provides wireless backhaul and fronthaul solutions that enable cellular operators and other wireless service providers to increase operational efficiency. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/distributed cells and the core of the service provider's network. It offers highly reliable, fast-to-deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate and labor resources. Ceragon delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization. The stock has a long-term earnings growth expectation of 15%. It sports a Zacks Rank #1.
Price and Consensus: CRNT