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Bright Near-Term Prospects for Wireless Non-US Industry
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The Zacks Wireless Non-US industry comprises mobile telecommunications and allied service providers primarily based in foreign shores. The industry participants mainly offer leading-edge voice services, including local, domestic and international calls and roaming services, prepaid and postpaid, as well as value-added services. These companies also provide wireless Internet service, alongside digital applications such as music, video and animation.
Some of the firms even sell various mobile handsets and accessories through dealer network and offer co-billing services to other telecommunication service providers. In addition, a few of them offer end-to-end software and services platform for the Enterprise of Things, including computers, vehicles, sensors, equipment and other connected endpoints, within the enterprise.
Let’s take a look at three major industry themes —
• Geographically, the wireless telecommunication services market is divided into seven key regions — North America, Latin America, Eastern Europe, Western Europe, Japan, Asia-Pacific, excluding Japan, and the Middle East & Africa. North America has the largest revenue share followed by Europe and Asia Pacific, thanks to breakthrough technological partnerships and easy adoption of avant-garde technologies by the population. Japan, Middle East and Africa, and Latin America hold meaningful potential for growth in the market, raising demand for wireless services. That said, massive capital outlay to extend network infrastructure for 5G mobile connectivity and cut-throat competition is further pushing down prices, leading to lower aggregate ARPU. This has led to soft margins for most of the firms and induced volatility in earnings.
• The global wireless ecosystem has witnessed considerable growth driven by rapid technological advancements, evolving customer needs and increasing smart device usage to access real time data. Wireless carriers across national territories have expanded their service portfolios to include a wide array of offerings to capitalize on growth opportunities in technology, media and telecommunications in areas such as enterprise cloud, TV, IoT, augmented and virtual reality, and autonomous vehicles. However, adjacent market segments tend to offer lower margins, and disruptive competitors are well positioned in key segments such as cloud and advertising. These pose impediments for operators in service portfolio expansion.
• Broad-based industry growth is expected over the next five years as carriers complete 5G superfast network rollouts and benefit from the burgeoning demand for data services. The majority of wireless subscription addition has stemmed from emerging markets, particularly India, China, Japan and Africa. Markets in developed economies have mostly reached saturation levels, preventing carriers from achieving the subscriber growth rates of their counterparts in emerging economies, forcing them to focus on higher average revenue per user (ARPU). Latin American countries such as Brazil, Mexico and Argentina are also slated to offer significant opportunities as the degree of penetration of high-speed broadband, 4G services and the usage of smartphones rise. 4G LTE deployment and network upgrades are the key trend across the globe, and in select markets there is also massive investment in fixed broadband based on fiber. 5G developments have gained pace and will continue to be a key area of focus throughout 2020.
Zacks Industry Rank Indicates Promising Prospects
The Zacks Wireless Non-US industry, which has 17 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #108, which places it at the top 43% 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 healthy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is an outcome of positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current fiscal have been raised 6% over the past two months.
Before we present a few non-U.S. wireless stocks that are well positioned to outperform the market based on an upbeat earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Wireless Non-US industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has lost 23.5% over this period compared with the S&P 500’s decline of 2.3%. Meanwhile, the broader sector has gained 2.9%.
One-Year Price Performance
Industry’s Current Valuation
Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing non-U.S. wireless stocks. The industry currently has a trailing 12-month EV/EBITDA of 9.30X compared with the S&P 500’s 11.04X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 11.18X.
Over the past five years, the industry has traded as high as 23.20X, as low as 6.35X with the median of 15.22X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
Bottom Line
Telecom services typically show a weak correlation to macroeconomic factors because they are deemed to be necessities. However, the wireless operators are weighed down by the churn rate in the face of dwindling voice- and text-revenues, leading to the disruptive rise of over-the-top service providers in this competitive and dynamic industry. The companies also face high depreciation charges due to large fixed asset base. Price-sensitive competition for customer retention in core business will likely become more intense in the coming days. Right now, the impact of the coronavirus is causing a short-term earnings recession due to disrupted supply chains and lower global demand.
None of the stocks in the space currently sports a Zacks Rank #1 (Strong Buy). We are presenting four stocks carrying a Zacks Rank #2 (Buy), which investors may consider betting on now. You can see the complete list of today’s Zacks #1 Rank stocks here.
BlackBerry Limited (BB - Free Report) : Headquartered in Waterloo, Canada, BlackBerry provides enterprise software and services worldwide. The Zacks Consensus Estimate for its current-year earnings has been revised 33.3% upward over the past 60 days. The company topped earnings estimates twice in the trailing four quarters, delivering a positive surprise of 68.8%, on average.
Price and Consensus: BB
PLDT Inc. (PHI - Free Report) : Based in Makati City, PLDT operates as a telecommunications company in the Philippines. The consensus estimate for its current-year earnings has moved 0.4% north over the past 60 days. The stock is currently trading with a forward P/E of 8.45X.
Price and Consensus: PHI
Millicom International Cellular S.A. (TIGO - Free Report) : Headquartered in Luxembourg City, Luxembourg, Millicom provides cable and mobile services in Latin America and Africa. The consensus estimate for its current-year earnings has been revised 1,383.3% upward over the past 60 days.
Price and Consensus: TIGO
Mobile TeleSystems Public Joint Stock Company : Based in Moscow, the company provides telecommunication services primarily in Russia, Ukraine, and Armenia. The consensus estimate for its current-year earnings has moved 2.8% north over the past 60 days.
Price and Consensus: MBT
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.7% per year.
These 7 were selected because of their superior potential for immediate breakout.
Image: Bigstock
Bright Near-Term Prospects for Wireless Non-US Industry
The Zacks Wireless Non-US industry comprises mobile telecommunications and allied service providers primarily based in foreign shores. The industry participants mainly offer leading-edge voice services, including local, domestic and international calls and roaming services, prepaid and postpaid, as well as value-added services. These companies also provide wireless Internet service, alongside digital applications such as music, video and animation.
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Some of the firms even sell various mobile handsets and accessories through dealer network and offer co-billing services to other telecommunication service providers. In addition, a few of them offer end-to-end software and services platform for the Enterprise of Things, including computers, vehicles, sensors, equipment and other connected endpoints, within the enterprise.
Let’s take a look at three major industry themes —
• Geographically, the wireless telecommunication services market is divided into seven key regions — North America, Latin America, Eastern Europe, Western Europe, Japan, Asia-Pacific, excluding Japan, and the Middle East & Africa. North America has the largest revenue share followed by Europe and Asia Pacific, thanks to breakthrough technological partnerships and easy adoption of avant-garde technologies by the population. Japan, Middle East and Africa, and Latin America hold meaningful potential for growth in the market, raising demand for wireless services. That said, massive capital outlay to extend network infrastructure for 5G mobile connectivity and cut-throat competition is further pushing down prices, leading to lower aggregate ARPU. This has led to soft margins for most of the firms and induced volatility in earnings.
• The global wireless ecosystem has witnessed considerable growth driven by rapid technological advancements, evolving customer needs and increasing smart device usage to access real time data. Wireless carriers across national territories have expanded their service portfolios to include a wide array of offerings to capitalize on growth opportunities in technology, media and telecommunications in areas such as enterprise cloud, TV, IoT, augmented and virtual reality, and autonomous vehicles. However, adjacent market segments tend to offer lower margins, and disruptive competitors are well positioned in key segments such as cloud and advertising. These pose impediments for operators in service portfolio expansion.
• Broad-based industry growth is expected over the next five years as carriers complete 5G superfast network rollouts and benefit from the burgeoning demand for data services. The majority of wireless subscription addition has stemmed from emerging markets, particularly India, China, Japan and Africa. Markets in developed economies have mostly reached saturation levels, preventing carriers from achieving the subscriber growth rates of their counterparts in emerging economies, forcing them to focus on higher average revenue per user (ARPU). Latin American countries such as Brazil, Mexico and Argentina are also slated to offer significant opportunities as the degree of penetration of high-speed broadband, 4G services and the usage of smartphones rise. 4G LTE deployment and network upgrades are the key trend across the globe, and in select markets there is also massive investment in fixed broadband based on fiber. 5G developments have gained pace and will continue to be a key area of focus throughout 2020.
Zacks Industry Rank Indicates Promising Prospects
The Zacks Wireless Non-US industry, which has 17 constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #108, which places it at the top 43% 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 healthy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the top 50% of the Zacks-ranked industries is an outcome of positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current fiscal have been raised 6% over the past two months.
Before we present a few non-U.S. wireless stocks that are well positioned to outperform the market based on an upbeat earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags Sector, S&P 500
The Zacks Wireless Non-US industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has lost 23.5% over this period compared with the S&P 500’s decline of 2.3%. Meanwhile, the broader sector has gained 2.9%.
One-Year Price Performance
Industry’s Current Valuation
Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing non-U.S. wireless stocks. The industry currently has a trailing 12-month EV/EBITDA of 9.30X compared with the S&P 500’s 11.04X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 11.18X.
Over the past five years, the industry has traded as high as 23.20X, as low as 6.35X with the median of 15.22X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
Bottom Line
Telecom services typically show a weak correlation to macroeconomic factors because they are deemed to be necessities. However, the wireless operators are weighed down by the churn rate in the face of dwindling voice- and text-revenues, leading to the disruptive rise of over-the-top service providers in this competitive and dynamic industry. The companies also face high depreciation charges due to large fixed asset base. Price-sensitive competition for customer retention in core business will likely become more intense in the coming days. Right now, the impact of the coronavirus is causing a short-term earnings recession due to disrupted supply chains and lower global demand.
None of the stocks in the space currently sports a Zacks Rank #1 (Strong Buy). We are presenting four stocks carrying a Zacks Rank #2 (Buy), which investors may consider betting on now. You can see the complete list of today’s Zacks #1 Rank stocks here.
BlackBerry Limited (BB - Free Report) : Headquartered in Waterloo, Canada, BlackBerry provides enterprise software and services worldwide. The Zacks Consensus Estimate for its current-year earnings has been revised 33.3% upward over the past 60 days. The company topped earnings estimates twice in the trailing four quarters, delivering a positive surprise of 68.8%, on average.
Price and Consensus: BB
PLDT Inc. (PHI - Free Report) : Based in Makati City, PLDT operates as a telecommunications company in the Philippines. The consensus estimate for its current-year earnings has moved 0.4% north over the past 60 days. The stock is currently trading with a forward P/E of 8.45X.
Price and Consensus: PHI
Millicom International Cellular S.A. (TIGO - Free Report) : Headquartered in Luxembourg City, Luxembourg, Millicom provides cable and mobile services in Latin America and Africa. The consensus estimate for its current-year earnings has been revised 1,383.3% upward over the past 60 days.
Price and Consensus: TIGO
Mobile TeleSystems Public Joint Stock Company : Based in Moscow, the company provides telecommunication services primarily in Russia, Ukraine, and Armenia. The consensus estimate for its current-year earnings has moved 2.8% north over the past 60 days.
Price and Consensus: MBT
Just Released: Zacks’ 7 Best Stocks for Today
Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.7% per year.
These 7 were selected because of their superior potential for immediate breakout.
See these time-sensitive tickers now >>