The Zacks Wireless Non-US industry is grappling with high capital expenditures for infrastructure upgrades, margin erosion, supply-chain disruptions due to geopolitical conflicts, higher tariffs, raging wars and high customer inventory levels. However, healthy demand trends stemming from the increasing propensity to stay connected in this digital age should benefit the industry in the long run.

Amid this backdrop, América Móvil, S.A.B. de C.V. (AMX Quick QuoteAMX - Free Report) , Telia Company AB (publ) (TLSNY Quick QuoteTLSNY - Free Report) and TIM S.A. (TIMB Quick QuoteTIMB - Free Report) are likely to capitalize on the rising demand for scalable infrastructure for wireless and fiber connectivity, with the wide proliferation of IoT and accelerated 5G deployment.

Industry Description

The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers based abroad. 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 Erosion for Legacy Services: 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 firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. 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.

Network Convergence: The convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. 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 to support the surge in home data traffic. The industry participants continue to invest 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 the evolving customer needs. 

Waning 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. The demand-supply imbalance has crippled operations and largely 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.

Zacks Industry Rank Indicates Bearish Prospects

The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #200, which places it in the bottom 17% 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 Outperforms S&P 500, Sector

The Zacks Wireless Non-US industry has outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.

The industry has gained 43.1% over this period compared with the S&P 500’s and sector’s rise of 16.3% and 27.3%, respectively.

One-Year Price Performance

Industry's Current Valuation

The Price/Book ratio is commonly used for valuing wireless stocks. The industry currently has a trailing 12-month P/B of 1.13X compared with the S&P 500’s 8.33X. It is also trading below the sector’s trailing 12-month P/B of 10.31X.

Over the past five years, the industry has traded as high as 3.66X and as low as 0.32X, with a median of 0.91X, as the chart below shows.

Enterprise Value-to-EBITDA Ratio (Past Five Years)

3 Non-US Wireless Stocks to Watch

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. America Movil’s principal markets are Mexico and Brazil, the two largest economies in Latin America. The company’s biggest subsidiary, Telcel, is the largest wireless service provider in Mexico. The Zacks Consensus Estimate for its current-year earnings has been revised 12.6% upward over the past 60 days. The stock has gained 54.1% in the past year. It has a VGM Score of A. America Movil sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: AMX

Telia: Headquartered in Solna, Sweden, Telia provides mobile telecommunication services for consumer, corporate and wholesale customers in Sweden, Finland, Norway, Denmark, Lithuania and Estonia. With an evolving product mix and a strong connectivity base driven by increased customer relevance, the company is likely to be the digital hub in the region. It has a VGM Score of B. Telia currently carries a Zacks Rank #3 (Hold). It has gained 39.3% in the past year.

Tim: Based in Rio de Janeiro, Brazil, Tim is one of the leading communication service providers in the Latin American country. The company focuses on aggressive 5G rollout throughout the country and reportedly has twice the number of 5G sites than its competitors. With a client base of more than 1.2 million, Tim has activated 5G service in about 1,000 cities. The company aims to continue using the asset-light model to expand its broadband footprint while evolving its B2B verticals, bringing IOT connectivity and solutions to Brazil’s infrastructure. Tim has a VGM Score of B. The Zacks Consensus Estimate for its current-year earnings has been revised 9.4% upward over the past year. This Zacks Rank #1 stock has gained 63% in the past year and has a long-term earnings growth expectation of 18.3%. 

Price and Consensus: TIMB