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3 Wireless Stocks Likely to Gain Despite Industry Headwinds
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The Zacks Wireless National industry appears to be mired in high capital expenditures for infrastructure upgrades, uncertainty due to tariff threats, supply-chain disruptions amid the prolonged Russia-Ukraine war, Middle East tensions and high customer inventory levels. However, the industry is likely to benefit in the long run from an accelerated 5G rollout and increased fiber densification.
Against this backdrop, T-Mobile US, Inc. (TMUS - Free Report) , Verizon Communications Inc. (VZ - Free Report) and Gogo Inc. (GOGO - Free Report) are likely to gain from higher demand for scalable infrastructure for sustainable networks with a wide proliferation of the Internet of Things (IoT), wireless traction and solid broadband momentum.
Industry Description
The Zacks Wireless National industry primarily comprises firms that provide a comprehensive range of communication services and business solutions. These include wireless, wireline, local exchange, long-distance calls, data/broadband and Internet, video, managed networking, messaging, wholesale and cloud-based services to retail consumers. The firms within the industry also offer IP-based voice and data services, targeted advertising, television, streaming content, cable networks and publishing operations, multiprotocol label switching networking, fiber optic long-haul networks and hosting and communications systems to businesses and government agencies. In addition, the firms provide edge computing services that allow businesses to route application-specific traffic where required and are most effective, whether in the cloud, the network, or on their premises.
What's Shaping the Future of the Wireless National Industry?
Volatility in Raw Material Prices: High raw material prices driven by Middle East tensions, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have impacted the operational schedules of various firms. In addition, the imposition of tariffs and reciprocal tariffs has affected the supply chain mechanism. The demand-supply imbalance has crippled operations and largely affected profitability due to inflated equipment prices. Wireless operators face 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. Aggressive competition is likely to limit the ability to attract and retain customers, affecting operating and financial results.
Thriving 5G & Fiber Ecosystem: Most industry participants are deploying the latest 4G LTE Advanced technologies to deliver higher peak data speeds and capacity, driven by customer-focused planning, disciplined engineering and investments for infrastructure upgrades. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards. Further, leading firms within the industry have been deploying the C-Band spectrum to gain additional coverage. These mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in rural and urban areas compared with mmWave. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.
Waning Legacy Services Squeeze Margins: Increased infrastructure spending for network upgrades has largely compromised short-term margins. Aggressive promotional expenses, lucrative discounts and the adoption of several low-priced service plans to attract and retain customers are eroding profits. A steady decline in linear TV subscribers and legacy services due to a challenging macroeconomic environment and high inflation adds to the margin woes. Consequently, the industry firms are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Companies are making significant investments to upgrade their network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture, which is affecting their profitability.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #163, 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 grim prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few wireless national 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 National industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has jumped 27.3% over this period compared with the S&P 500 and the sector’s growth of 10.8% and 9.2%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 9.38X compared with the S&P 500’s 16.85X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.58X.
Over the past five years, the industry has traded as high as 9.78X, as low as 5.88X and at the median of 7.44X, as the chart below shows.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Wireless National Stocks to Keep a Close Eye on
Gogo: Founded in 1991 and headquartered in Chicago, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divestiture of the commercial in-flight connectivity division, the company has restructured its business model to focus more on its core operations. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. This Zacks Rank #2 (Buy) stock delivered an earnings surprise of 129.5%, on average, in the trailing four quarters. Gogo has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: GOGO
T-Mobile: Headquartered in Bellevue, WA, T-Mobile is a leading national wireless service provider. The company offers services under the T-Mobile, Metro by T-Mobile and Sprint brands. TMUS is benefiting from industry-leading postpaid customer growth with a record-low churn rate. Its dedicated 5G spectrum assets, which have superior propagation and a strong emphasis on customer experience, are supporting the top line. Its Ultra Capacity 5G network is powered by the mid-band 2.5 GHz spectrum, which delivers superfast speed, covers more than 330 million people and ensures a superior 5G experience. The stock has gained 37.1% over the past year. It has a long-term earnings growth expectation of 17.2% and delivered an earnings surprise of 10.9%, on average, in the trailing four quarters. It has a VGM Score of B. T-Mobile carries a Zacks Rank #3 (Hold).
Price and Consensus: TMUS
Verizon: Based in New York, Verizon is one of the leading full-service wireless carriers in the United States. With one of the most efficient wireless networks in the United States, it deploys 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. Verizon has been aggressively forging ahead to expand its fiber-optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. This Zacks Rank #3 stock has gained 5.5% over the past year. Verizon has a VGM Score of A.
Price and Consensus: VZ
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3 Wireless Stocks Likely to Gain Despite Industry Headwinds
The Zacks Wireless National industry appears to be mired in high capital expenditures for infrastructure upgrades, uncertainty due to tariff threats, supply-chain disruptions amid the prolonged Russia-Ukraine war, Middle East tensions and high customer inventory levels. However, the industry is likely to benefit in the long run from an accelerated 5G rollout and increased fiber densification.
Against this backdrop, T-Mobile US, Inc. (TMUS - Free Report) , Verizon Communications Inc. (VZ - Free Report) and Gogo Inc. (GOGO - Free Report) are likely to gain from higher demand for scalable infrastructure for sustainable networks with a wide proliferation of the Internet of Things (IoT), wireless traction and solid broadband momentum.
Industry Description
The Zacks Wireless National industry primarily comprises firms that provide a comprehensive range of communication services and business solutions. These include wireless, wireline, local exchange, long-distance calls, data/broadband and Internet, video, managed networking, messaging, wholesale and cloud-based services to retail consumers. The firms within the industry also offer IP-based voice and data services, targeted advertising, television, streaming content, cable networks and publishing operations, multiprotocol label switching networking, fiber optic long-haul networks and hosting and communications systems to businesses and government agencies. In addition, the firms provide edge computing services that allow businesses to route application-specific traffic where required and are most effective, whether in the cloud, the network, or on their premises.
What's Shaping the Future of the Wireless National Industry?
Volatility in Raw Material Prices: High raw material prices driven by Middle East tensions, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have impacted the operational schedules of various firms. In addition, the imposition of tariffs and reciprocal tariffs has affected the supply chain mechanism. The demand-supply imbalance has crippled operations and largely affected profitability due to inflated equipment prices. Wireless operators face 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. Aggressive competition is likely to limit the ability to attract and retain customers, affecting operating and financial results.
Thriving 5G & Fiber Ecosystem: Most industry participants are deploying the latest 4G LTE Advanced technologies to deliver higher peak data speeds and capacity, driven by customer-focused planning, disciplined engineering and investments for infrastructure upgrades. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards. Further, leading firms within the industry have been deploying the C-Band spectrum to gain additional coverage. These mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in rural and urban areas compared with mmWave. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.
Waning Legacy Services Squeeze Margins: Increased infrastructure spending for network upgrades has largely compromised short-term margins. Aggressive promotional expenses, lucrative discounts and the adoption of several low-priced service plans to attract and retain customers are eroding profits. A steady decline in linear TV subscribers and legacy services due to a challenging macroeconomic environment and high inflation adds to the margin woes. Consequently, the industry firms are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Companies are making significant investments to upgrade their network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture, which is affecting their profitability.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #163, 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 grim prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
Before we present a few wireless national 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 National industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has jumped 27.3% over this period compared with the S&P 500 and the sector’s growth of 10.8% and 9.2%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the 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 9.38X compared with the S&P 500’s 16.85X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.58X.
Over the past five years, the industry has traded as high as 9.78X, as low as 5.88X and at the median of 7.44X, as the chart below shows.
Trailing 12-Month Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
3 Wireless National Stocks to Keep a Close Eye on
Gogo: Founded in 1991 and headquartered in Chicago, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divestiture of the commercial in-flight connectivity division, the company has restructured its business model to focus more on its core operations. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. This Zacks Rank #2 (Buy) stock delivered an earnings surprise of 129.5%, on average, in the trailing four quarters. Gogo has a VGM Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: GOGO
T-Mobile: Headquartered in Bellevue, WA, T-Mobile is a leading national wireless service provider. The company offers services under the T-Mobile, Metro by T-Mobile and Sprint brands. TMUS is benefiting from industry-leading postpaid customer growth with a record-low churn rate. Its dedicated 5G spectrum assets, which have superior propagation and a strong emphasis on customer experience, are supporting the top line. Its Ultra Capacity 5G network is powered by the mid-band 2.5 GHz spectrum, which delivers superfast speed, covers more than 330 million people and ensures a superior 5G experience. The stock has gained 37.1% over the past year. It has a long-term earnings growth expectation of 17.2% and delivered an earnings surprise of 10.9%, on average, in the trailing four quarters. It has a VGM Score of B. T-Mobile carries a Zacks Rank #3 (Hold).
Price and Consensus: TMUS
Verizon: Based in New York, Verizon is one of the leading full-service wireless carriers in the United States. With one of the most efficient wireless networks in the United States, it deploys 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. Verizon has been aggressively forging ahead to expand its fiber-optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. This Zacks Rank #3 stock has gained 5.5% over the past year. Verizon has a VGM Score of A.
Price and Consensus: VZ