The Zacks Wireless Non-US industry is plagued by a challenging macroeconomic environment marked by elevated infrastructure investments, supply chain disruptions due to geopolitical instability, global conflicts in the Middle East and high customer inventory levels. Nevertheless, secular demand for high-speed wireless and fiber services remains intact, fueled by increasing digitalization, expanding IoT adoption and continued 5G rollouts.

Amid this backdrop, KDDI Corporation (KDDIY Quick QuoteKDDIY - Free Report) , Millicom International Cellular S.A. (TIGO Quick QuoteTIGO - Free Report) and SoftBank Group Corp. (SFTBY Quick QuoteSFTBY - Free Report) are likely to benefit from significant long-term growth opportunities and are well-positioned to capitalize on robust demand for advanced connectivity solutions and next-generation network services.

Industry Description

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

Margin Pressure: High raw material prices due to the Iran war, on-again-off-again 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 from 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.

Network Optimization: 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 carriers to focus more on network upgrades to cater to the evolving customer needs.

Short-Term Profitability at Stake: 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 investing heavily to upgrade their network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture. Although these infrastructure investments are likely to be beneficial in the long run, short-term profitability has largely been compromised.

Zacks Industry Rank Indicates Bearish Trends

The Zacks Wireless Non-U.S. industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #178, which places it in the bottom 28% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all 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-U.S. 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 Lags S&P 500, Sector

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

The industry has soared 10.7% over this period compared with the S&P 500’s and sector’s rise of 18.7% and 25.7%, 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 5.17X compared with the S&P 500’s 18.22X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 20.19X.

Over the past five years, the industry has traded as high as 11.23X and as low as 3.1X, with a median of 5.34X, as the chart below shows.

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

3 Non-US Wireless Stocks to Watch

KDDI: Headquartered in Tokyo, KDDI is one of the leading communication service providers in Japan. The company operates its retail operations through ‘au’, ‘UQ mobile’ and ‘povo’ brands and ‘KDDI BUSINESS’ brand for corporate customers. With a focus on 5G communications, data-driven practices and generative AI, KDDI aims to accelerate business growth by providing value-added services in finance, energy and life transformation, which encompasses five areas of future growth (Mobility, Sports/Entertainment, Web3/Metaverse, Healthcare and Space). The stock has gained 15.6% in the past year. KDDI currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Millicom: Headquartered in Luxembourg, Millicom is a leading telecommunications provider in Latin America. Through its TIGO and Tigo Business brands, the company provides a wide range of digital services and products, including TIGO Money for mobile financial services, TIGO Sports for local entertainment and TIGO ONEtv for pay TV, high-speed data, voice and business-to-business solutions such as cloud and security. Millicom provides mobile and fiber-cable services through its digital highways to more than 46 million customers, with a fiber-cable footprint of more than 14 million homes. This Zacks Rank #1 firm has gained 71.8% in the past year.  

Price and Consensus: TIGO

SoftBank: Headquartered in Tokyo, Japan, SoftBank provides telecommunications services in Japan and internationally. The company is evolving from a traditional telecommunications carrier into an AI infrastructure provider, enabling intelligence across distributed edge and cloud environments so that devices, robots and connected systems can operate beyond their standalone capabilities. SoftBank carries a Zacks Rank #3 (Hold) at present.