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.

In this backdrop, Vodafone Group Public Limited Company (VOD Quick QuoteVOD - Free Report) , Telia Company AB (TLSNY Quick QuoteTLSNY - Free Report) and TIM S.A. (TIMB Quick QuoteTIMB - Free Report) are likely to gain from significant long-term growth opportunities and rising demand for seamless wireless and fiber connectivity, with the wide proliferation of IoT and accelerated 5G deployment.

Industry Description

The Zacks Wireless Non-US industry comprises overseas providers of mobile telecommunications and broadband service. 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 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?

Depleting Margins: High raw material prices due to the Iran war, shipping restrictions in the Strait of Hormuz, soaring energy prices, 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.

Optimization of Network Capabilities: 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. 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. 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.

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.

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 #201, which places it in the bottom 18% 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, Matches Sector

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

The industry has soared 53% over this period compared with the S&P 500’s and sector’s rise of 33.8% and 53%, 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 4.94X compared with the S&P 500’s 17.69X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 20.35X.

Over the past five years, the industry has traded as high as 11.23X and as low as 3.1X, with a median of 5.3X, as the chart below shows.

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

3 Non-US Wireless Stocks to Buy

Vodafone: Based in the United Kingdom, Vodafone engages in telecommunication services in Europe and internationally. The company operates mobile and fixed networks in 15 countries and partners with mobile networks in 40 more. Vodafone has inked a deal with Amazon.com, Inc.’s subsidiary Amazon Leo to connect 4G and 5G mobile masts in remote areas in Europe and Africa. The agreement aims to leverage Amazon’s low Earth orbit satellite network to strengthen Vodafone’s network reach while potentially lowering infrastructure costs. The company has about 340 million mobile and broadband customers. It has a long-term earnings growth expectation of 39% and a VGM Score of A. It has gained 66% in the past year. Vodafone currently 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: VOD

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. This Zacks Rank #2 stock has gained 35.4% 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 as 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 A. The Zacks Consensus Estimate for its current-year and next-year earnings has been revised 21.8% and 25.3% upward, respectively, over the past year. This Zacks Rank #2 stock has gained 49% in the past year and has a long-term earnings growth expectation of 20.8%. 

Price and Consensus: TIMB