Wireless Non-US industry appears to be grappling with a challenging macroeconomic environment and uncertain business scenario despite a gradual revival in post-pandemic market conditions. In addition, high capital expenditures for infrastructure upgrades, margin erosion, inflationary pressures, supply-chain disruptions due to the prolonged Russia-Ukraine war and high customer inventory levels have dented the industry’s profitability. Nevertheless, América Móvil, S.A.B. de C.V. ( AMX Quick Quote AMX - Free Report) , Orange S.A. () and Turkcell Iletisim Hizmetleri A.S. () might benefit in the long run from 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
Uncertainty regarding the 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 a 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 due to the prolonged Russia-Ukraine war and soft market conditions in China. Wireless operators have been facing 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 and affect operating and financial results. Inflated Equipment Prices: 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 companies aim to extend their geographical footprint through the development of existing businesses and strategic acquisitions. Wireless carriers are also adopting unlimited plans to enhance average revenue per user. They are focusing on increasing handset connections and customer loyalty to boost revenues and profitability. Furthermore, the industry participants are taking a holistic approach to content delivery. They are offering various pathways for delivering services through a combination of network-based video transcoding and compression technologies to provide IP video formats, live TV and streaming services. Holistic Growth Model: With the exponential growth of mobile broadband traffic and home Internet solutions, 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. The industry participants continue investing in networks to increase coverage and implement new technologies to optimize network capabilities. 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. Moreover, telecom services show a weak correlation to macroeconomic factors as these are considered necessities. This, in turn, has led the carriers to focus more on network upgrades to cater to evolving customer needs. 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. Short-Term Profitability Compromised: Zacks Industry Rank Indicates Bearish Trends
The Zacks Wireless Non-US industry is housed within the broader Zacks
Computer and Technology sector. It currently has a Zacks Industry Rank #168, which places it in the bottom 33% 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 bleak 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 Lags Sector, S&P 500
The Zacks Wireless Non-US industry has lagged the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has lost 2.6% over this period against the S&P 500’s and sector’s rise of 3% and 3.6%, 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 6.96X compared with the S&P 500’s 12.22X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 10.6X.
Over the past five years, the industry has traded as high as 21.81X, as low as 1.45X, with a median of 6.67X, as the chart below shows. Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Non-US Wireless Stocks to Keep a Close Eye on
Turkcell Iletisim: Headquartered in Istanbul, Turkey, Turkcell Iletisim is one of the leading providers of mobile communications services. With a unique portfolio of digital services along with voice, messaging, data and IP services on its mobile and fixed networks, it also offers services in Ukraine, Belarus and Northern Cyprus. In 2022, the company’s customer base comprised 887K homes with end-to-end fiber. Total fiber home passes were 5.4 million. The company’s net fiber additions were 234K subscribers for the full year. Turkcell Iletisim is likely to benefit from higher penetration of its complementary and content-heavy TV+ service. It has a VGM Score of A. The Zacks Consensus Estimate for its current-year earnings has been revised 48% upward over the past year. It delivered a trailing four-quarter earnings surprise of 30.6% on average. Turkcell Iletisim sports a Zacks Rank #1 (Strong Buy). Price and Consensus: TKC 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. The Zacks Consensus Estimate for its current-year earnings has been revised 14.7% upward since October 2022. It carries a Zacks Rank #2 (Buy). Price and Consensus: ORAN 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 a 5G network in Austria. America Movil has also launched 4.5G networks in Brazil, Mexico and Dominican Republic that can deliver speeds up to 10 times faster than 4G to allow subscribers to experience voice and video in high definition. The Zacks Consensus Estimate for its current-year earnings has been revised 8.5% upward since July 2022. The stock has gained 11.7% in the past year and has a long-term earnings growth expectation of 20.9%. It has a VGM Score of A. America Movil currently carries a Zacks Rank #3 (Hold). Price and Consensus: AMX