The Zacks Wireless National industry is likely to benefit from healthy demand trends with an accelerated 5G rollout and increased fiber densification, helping bridge the digital divide with seamless connectivity. However, high capital expenditures for infrastructure upgrades, margin erosion, supply-chain disruptions, tariff wars and high customer inventory levels have dented the industry’s profitability.

Nevertheless, Array Digital Infrastructure, Inc. (AD Quick QuoteAD - Free Report) , Liberty Latin America Ltd. (LILA Quick QuoteLILA - Free Report) and Cambium Networks Corporation (CMBM Quick QuoteCMBM - Free Report) are likely to gain from higher demand for scalable infrastructure for sustainable networks, supported by a wide proliferation of 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?

5G Ecosystem Gaining Traction: 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, as well as wireline connections. 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. With low latency and increased bandwidth, business enterprises are increasingly embracing the exciting possibilities offered by artificial intelligence and the IoT via the real-time transfer of mobile data. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.

Price-Sensitive Competition: 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 in a challenging macroeconomic environment are eroding profits. The 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 that squeezes margins. High raw material prices due to the Middle-East tensions, the prolonged Russia-Ukraine war and the consequent economic sanctions against the Putin regime have affected the operation schedule of various firms. In addition, a slew of proposed tariffs on imported goods from major trading partners and allies of the United States, announced by President Trump, has eroded margins to a large extent and affected the global supply chain mechanism. The demand-supply imbalance has crippled operations and affected profitability due to inflated equipment prices. 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. Aggressive competition is likely to limit the ability to attract and retain customers and affect operating and financial results.

Software-Centric Network Rationalization: The industry participants are realigning their wireless networks toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The industry players are focused on bringing improved operational efficiencies through network simplification and rationalization, boosting end-to-end provisioning time and driving standardization. Moreover, the firms are offering a variety of pathways for delivering services through a combination of network-based video transcoding, packaging, storage and compression technologies to provide new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside the home.

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 #101, which places it in the top 41% 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 rosy 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 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 22.4% over this period compared with the S&P 500 and the sector’s growth of 15.9% and 21.4%, 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 9.5X compared with the S&P 500’s 17.77X. It is also below the sector’s trailing 12-month EV/EBITDA of 17.81X.

Over the past five years, the industry has traded as high as 9.71X, as low as 6.14X and at the median of 7.51X, 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

Array Digital: Headquartered in Chicago, IL, Array Digital (previously known as United States Cellular Corporation) is a leading full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses. The company is benefiting from solid user engagement in its fixed wireless business and an improvement in tower rental revenues. The geographical diversity and well-balanced presence across various major wireless carriers highlight the robustness of its tower rental portfolio. Management's efforts to enhance operational efficiency and drive cost optimization across its operations have significantly boosted profitability despite a challenging competitive environment. The stock has delivered an earnings surprise of 40%, on average, in the trailing four quarters. It has a VGM Score of A. Array Digital 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: AD

Liberty Latin America: Based in Denver, CO, Liberty Latin America is a communications firm with operations in Chile, Puerto Rico, the Caribbean and other parts of Latin America. Liberty Latin America is poised to benefit from an end-to-end communications platform, leveraging the power of a sub-sea network, fixed-line networks & mobile platforms. With an expanded regional footprint and upgraded infrastructure facilities, it is likely to deliver enterprise-grade connectivity, data center, hosting and managed solutions and IT services. It carries a Zacks Rank #3 (Hold).

Price and Consensus: LILA

Cambium: Headquartered in Rolling Meadows, IL, Cambium operates as a wireless solutions provider, connecting people with a flexible network infrastructure. Backed by dynamic business fundamentals, the company has a broad portfolio of fixed wireless broadband and Wi-Fi networking solutions. The innovative offerings enable the creation of a unified wireless fabric that spans across multiple frequencies of Wi-Fi, managed centrally via the cloud. The company is well-positioned to benefit from a proprietary software and product ramp-up, likely enabling it to deliver a compelling combination of price, performance and spectrum efficiency. One of the major advantages of Cambium are its fixed wireless broadband networking infrastructure solutions, which are distinguished by embedded intelligence and scalability. Cambium has a long-term earnings growth expectation of 20%. This Zacks Rank #3 stock has a VGM Score of B. 

Price and Consensus: CMBM