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Wireless National Stock Outlook: Prospects Look Enthralling
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The Zacks Wireless National industry primarily comprises companies that provide a comprehensive range of communication and business solutions, including wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services. The firms within the industry offer IP-based voice and data services, multiprotocol label switching networking, data center and managed services, hosting services and communications systems to businesses and government agencies. Also, the companies provide high-speed Internet, voice and digital television services to residential customers in rural and urban areas.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences at scale in trusted, premium content environments. Some even provide film, television, cable networks and publishing operations with significant media assets in the portfolio. In addition, few industry participants offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers.
Here are the three major themes in the industry:
• The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, companies are making significant investments to upgrade the network and product portfolio, including considerable advances in software-defined wide area network capabilities and a new Cloud Core architecture. This is realigning the wireless network toward a software-centric model to meet increasing business demands and customer needs. The companies remain focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization.
• Most of the industry participants are deploying the latest 4G LTE Advanced technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investment. At the same time, the companies are expanding their fiber optics networks to support 4G LTE and upcoming 5G wireless standards as well as wireline connections. Fiber-optic cable network is vital for backhaul and last mile local loop, which are required by wireless service providers for their future 5G network. 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, the leading firms within the industry are poised to launch next-generation 5G wireless residential broadband services in multiple U.S. markets in 2019, while a full phased 5G wireless network is likely to be offered in 2020.
• The industry participants are transforming the entertainment experience through a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and mobile experiences. Moreover, the firms offer a variety of pathways for delivering services through a combination of network-based video transcoding, packaging, storage and compression technologies required to deliver new IP video formats 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 their business models.
Overall, the industry appears poised to benefit from healthy growth dynamics, favorable industry drivers and inherent sector strength.
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 #95, which places it at the top 37% 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 outperforms 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 positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have reposed faith in this group’s earnings growth potential. The industry’s earnings estimates for 2019 have improved 3.3% since May-end last year.
Before we present a few communication components 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 Trumps Sector, Lags S&P 500
The Zacks Communication - Infrastructure Industry has outpaced the broader Zacks Utilities Sector, while lagging the S&P 500 composite over the past year largely due to uncertainties pertaining to the trade dispute.
The industry has gained 0.3% over this period compared with the sector’s fall of 0.9%, while S&P 500 composite has inched up 2.5%.
One Year Price Performance
Industry’s Current Valuation
On the basis of 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 10.08X compared with the S&P 500’s tally of 10.63X. It is also below the sector’s trailing-12-month EV/EBITDA of 10.28X.
Over the past five years, the industry has traded as high as 11.35X and as low as 5.51X and at the median of 7.04X, as the chart below shows.
Trailing 12-Month enterprise value-to EBITDA (EV/EBITDA) Ratio
Bottom Line
The industry is well poised to benefit from the widespread launch of 5G technologies, fiber optics and massive proliferation of data traffic. However, issues related to the trade war remain a latent threat, although the ongoing bilateral trade talks signal that a long-term solution is imminent.
One stock in the space currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. We are also presenting another stock with Zacks Rank #2 (Buy) and another two stocks with Zacks Rank #3 (Hold) that are well positioned to grow.
Telenav, Inc. : Based in Santa Clara, CA, this wireless national telecom service provider has a trailing four-quarter average positive surprise of 23.7%. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #1 stock has moved up 51.1% since April-end 2018.
Price and Consensus: TNAV
ATN International, Inc. (ATNI - Free Report) : Founded in 1987 and headquartered in Beverly, MA, this wireless national telecom service provider has gained a solid 39.7% in the past year. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #2 stock has moved up 333.3% in the past year.
Price and Consensus: ATNI
CenturyLink, Inc. : Based in Monroe, LA, this Zacks Rank #3 wireless national telecom service provider has a trailing four-quarter average positive surprise of 23.4%. The Zacks Consensus Estimate for the current and next fiscal-year earnings has moved up 23.1% and 58.1%, respectively, in the past year.
Price and Consensus: CTL
United States Cellular Corp. (USM - Free Report) : Headquartered in Chicago, IL, this Zacks Rank #3 wireless national telecom service provider has gained a solid 67.9% in the past year. It has a trailing four-quarter average positive surprise of 108.1%. The Zacks Consensus Estimate for the current and next fiscal-year earnings has moved up a stellar 205.7% and 84.8%, respectively, in the past year.
Price and Consensus: USM
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
Image: Bigstock
Wireless National Stock Outlook: Prospects Look Enthralling
The Zacks Wireless National industry primarily comprises companies that provide a comprehensive range of communication and business solutions, including wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services. The firms within the industry offer IP-based voice and data services, multiprotocol label switching networking, data center and managed services, hosting services and communications systems to businesses and government agencies. Also, the companies provide high-speed Internet, voice and digital television services to residential customers in rural and urban areas.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences at scale in trusted, premium content environments. Some even provide film, television, cable networks and publishing operations with significant media assets in the portfolio. In addition, few industry participants offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers.
Here are the three major themes in the industry:
• The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, companies are making significant investments to upgrade the network and product portfolio, including considerable advances in software-defined wide area network capabilities and a new Cloud Core architecture. This is realigning the wireless network toward a software-centric model to meet increasing business demands and customer needs. The companies remain focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization.
• Most of the industry participants are deploying the latest 4G LTE Advanced technologies to deliver faster peak data speeds and capacity for customers, driven by customer-focused planning, disciplined engineering and constant strategic investment. At the same time, the companies are expanding their fiber optics networks to support 4G LTE and upcoming 5G wireless standards as well as wireline connections. Fiber-optic cable network is vital for backhaul and last mile local loop, which are required by wireless service providers for their future 5G network. 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, the leading firms within the industry are poised to launch next-generation 5G wireless residential broadband services in multiple U.S. markets in 2019, while a full phased 5G wireless network is likely to be offered in 2020.
• The industry participants are transforming the entertainment experience through a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and mobile experiences. Moreover, the firms offer a variety of pathways for delivering services through a combination of network-based video transcoding, packaging, storage and compression technologies required to deliver new IP video formats 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 their business models.
Overall, the industry appears poised to benefit from healthy growth dynamics, favorable industry drivers and inherent sector strength.
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 #95, which places it at the top 37% 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 outperforms 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 positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have reposed faith in this group’s earnings growth potential. The industry’s earnings estimates for 2019 have improved 3.3% since May-end last year.
Before we present a few communication components 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 Trumps Sector, Lags S&P 500
The Zacks Communication - Infrastructure Industry has outpaced the broader Zacks Utilities Sector, while lagging the S&P 500 composite over the past year largely due to uncertainties pertaining to the trade dispute.
The industry has gained 0.3% over this period compared with the sector’s fall of 0.9%, while S&P 500 composite has inched up 2.5%.
One Year Price Performance
Industry’s Current Valuation
On the basis of 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 10.08X compared with the S&P 500’s tally of 10.63X. It is also below the sector’s trailing-12-month EV/EBITDA of 10.28X.
Over the past five years, the industry has traded as high as 11.35X and as low as 5.51X and at the median of 7.04X, as the chart below shows.
Trailing 12-Month enterprise value-to EBITDA (EV/EBITDA) Ratio
Bottom Line
The industry is well poised to benefit from the widespread launch of 5G technologies, fiber optics and massive proliferation of data traffic. However, issues related to the trade war remain a latent threat, although the ongoing bilateral trade talks signal that a long-term solution is imminent.
One stock in the space currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. We are also presenting another stock with Zacks Rank #2 (Buy) and another two stocks with Zacks Rank #3 (Hold) that are well positioned to grow.
Telenav, Inc. : Based in Santa Clara, CA, this wireless national telecom service provider has a trailing four-quarter average positive surprise of 23.7%. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #1 stock has moved up 51.1% since April-end 2018.
Price and Consensus: TNAV
ATN International, Inc. (ATNI - Free Report) : Founded in 1987 and headquartered in Beverly, MA, this wireless national telecom service provider has gained a solid 39.7% in the past year. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #2 stock has moved up 333.3% in the past year.
Price and Consensus: ATNI
CenturyLink, Inc. : Based in Monroe, LA, this Zacks Rank #3 wireless national telecom service provider has a trailing four-quarter average positive surprise of 23.4%. The Zacks Consensus Estimate for the current and next fiscal-year earnings has moved up 23.1% and 58.1%, respectively, in the past year.
Price and Consensus: CTL
United States Cellular Corp. (USM - Free Report) : Headquartered in Chicago, IL, this Zacks Rank #3 wireless national telecom service provider has gained a solid 67.9% in the past year. It has a trailing four-quarter average positive surprise of 108.1%. The Zacks Consensus Estimate for the current and next fiscal-year earnings has moved up a stellar 205.7% and 84.8%, respectively, in the past year.
Price and Consensus: USM
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
See Latest Stocks Today >>