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Wireless National Outlook Appears Strong Despite Adversities
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The Zacks Wireless National industry primarily comprises companies 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, multiprotocol label switching networking, data center and managed services, fiber optic long-haul network, 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 to where it is required and most effective — whether in the cloud, the network or on their premises.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences in trusted, premium content environments. Some even provide film, television, streaming content, cable networks and publishing operations with significant media assets in their portfolio. Few industry participants further offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers. Some notable firms within the industry are AT&T Inc. (T - Free Report) , T-Mobile US, Inc. (TMUS - Free Report) and Verizon Communications Inc. (VZ - Free Report) .
Here are the three major themes in the industry:
• The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, the companies are making significant investments to upgrade network and product portfolio, including considerable advances in software-defined wide area network capabilities and a new Cloud Core architecture. This has realigned the companies’ wireless network toward a software-centric model to meet increasing business demands and customer needs. The companies are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization. Also, the firms are offering the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. Utilizing machine learning techniques and more connected devices, these networks are likely to transform the way data-intensive images and videos are transferred across the industry on a real-time basis. All these efforts have particularly helped firms in the industry to cater to the upsurge in data demand when majority of the population is forced to work from the safety of their homes to avert being exposed to the deadly coronavirus attack.
• Most of the 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 an infrastructure upgrade. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. Fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplementing macro networks to provide extensive coverage. Further, leading firms within the industry are increasingly deploying next-generation 5G wireless residential broadband services in multiple U.S. markets, while full-phased commercial 5G wireless services are likely to be slightly delayed as the coronavirus pandemic continues to wreak havoc with widespread economic damage. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage, speeds and devices.
• The industry participants are taking a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and mobile experiences. 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 offer new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside the home. In addition, some sector firms are reinventing online advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases. This has led to a faster turnaround of advertising campaigns, enabling marketers to access and understand the efficacy of these messages in weeks instead of months. These, in turn, are giving a new dimension to the business models.
Overall, the industry appears poised to benefit from healthy growth dynamics, favorable factors and inherent sector strength.
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 #43, which places it at the top 17% 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 encouraging 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have reposed faith in this group’s earnings growth potential. The industry’s earnings estimate for the current and the next fiscal has remained almost steady since May 2019.
Before we present a few communication component 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 Trumps S&P 500 & Sector
The Zacks Wireless National industry has surpassed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year owing to a higher pace of 5G deployment and underlying solid growth potential.
The industry has lost 1.6% over this period compared with the S&P 500 composite and sector’s decline of 15.9% and 10.2%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 5.65X compared with the S&P 500’s 8.87X. It is also below the sector’s trailing-12-month EV/EBITDA of 9.32X.
Over the past five years, the industry has traded as high as 11.63X and as low as 5.58X and at the median of 6.65X, as the chart below shows.
Trailing 12-Month enterprise value-to EBITDA (EV/EBITDA) Ratio
Bottom Line
The industry is well poised to benefit from the continued deployment of 5G technologies, fiber optics and massive proliferation of data traffic despite adversities. However, issues related to the global coronavirus pandemic and tense undercurrents between the United States and China regarding its origin as a means of chemical warfare remain latent threats.
Telenav, Inc. : Headquartered in Sunnyvale, CA, this wireless national telecom service provider has a positive earnings surprise of 77.1%, on average, in the trailing four quarters. The Zacks Consensus Estimate for the current fiscal-year earnings has moved up 175% over the past year.
Cogent Communications Holdings, Inc. (CCOI - Free Report) : Founded in 1999 and based in Washington, DC, this wireless national telecom service provider has a trailing four-quarter positive surprise of 15.9%, on average. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #2 (Buy) stock has moved up 7.3% over the past 60 days. Cogent has a long-term earnings growth expectation of 11.5% and has gained a solid 53.8% in the past year.
Price and Consensus: CCOI
Liberty Global PLC (LILA - Free Report) : Based in Denver, CO, this wireless national telecom service provider’s shares have gained a solid 52.3% in the past year. The Zacks Consensus Estimate for next fiscal-year earnings for this Zacks Rank #2 stock has moved up 81.8% since June 2019.
Price and Consensus: LILA
CenturyLink, Inc. : Based in Monroe, LA, this wireless national telecom service provider has a trailing four-quarter positive surprise of 8.8%, on average. The Zacks Consensus Estimate for the current fiscal-year earnings has moved up 8.1%, while that for the next fiscal has grown 5.5% since August-end 2019. This Zacks Rank #3 (Hold) stock has a long-term earnings growth expectation of 6.9%.
Price and Consensus: CTL
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This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
Image: Bigstock
Wireless National Outlook Appears Strong Despite Adversities
The Zacks Wireless National industry primarily comprises companies 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, multiprotocol label switching networking, data center and managed services, fiber optic long-haul network, 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 to where it is required and most effective — whether in the cloud, the network or on their premises.
Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences in trusted, premium content environments. Some even provide film, television, streaming content, cable networks and publishing operations with significant media assets in their portfolio. Few industry participants further offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers. Some notable firms within the industry are AT&T Inc. (T - Free Report) , T-Mobile US, Inc. (TMUS - Free Report) and Verizon Communications Inc. (VZ - Free Report) .
Here are the three major themes in the industry:
• The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, the companies are making significant investments to upgrade network and product portfolio, including considerable advances in software-defined wide area network capabilities and a new Cloud Core architecture. This has realigned the companies’ wireless network toward a software-centric model to meet increasing business demands and customer needs. The companies are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization. Also, the firms are offering the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. Utilizing machine learning techniques and more connected devices, these networks are likely to transform the way data-intensive images and videos are transferred across the industry on a real-time basis. All these efforts have particularly helped firms in the industry to cater to the upsurge in data demand when majority of the population is forced to work from the safety of their homes to avert being exposed to the deadly coronavirus attack.
• Most of the 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 an infrastructure upgrade. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. Fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplementing macro networks to provide extensive coverage. Further, leading firms within the industry are increasingly deploying next-generation 5G wireless residential broadband services in multiple U.S. markets, while full-phased commercial 5G wireless services are likely to be slightly delayed as the coronavirus pandemic continues to wreak havoc with widespread economic damage. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage, speeds and devices.
• The industry participants are taking a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and mobile experiences. 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 offer new IP video formats, live TV, streaming services and home gateways to connected devices inside and outside the home. In addition, some sector firms are reinventing online advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases. This has led to a faster turnaround of advertising campaigns, enabling marketers to access and understand the efficacy of these messages in weeks instead of months. These, in turn, are giving a new dimension to the business models.
Overall, the industry appears poised to benefit from healthy growth dynamics, favorable factors and inherent sector strength.
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 #43, which places it at the top 17% 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 encouraging 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.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have reposed faith in this group’s earnings growth potential. The industry’s earnings estimate for the current and the next fiscal has remained almost steady since May 2019.
Before we present a few communication component 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 Trumps S&P 500 & Sector
The Zacks Wireless National industry has surpassed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year owing to a higher pace of 5G deployment and underlying solid growth potential.
The industry has lost 1.6% over this period compared with the S&P 500 composite and sector’s decline of 15.9% and 10.2%, respectively.
One Year Price Performance
Industry’s Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 5.65X compared with the S&P 500’s 8.87X. It is also below the sector’s trailing-12-month EV/EBITDA of 9.32X.
Over the past five years, the industry has traded as high as 11.63X and as low as 5.58X and at the median of 6.65X, as the chart below shows.
Trailing 12-Month enterprise value-to EBITDA (EV/EBITDA) Ratio
Bottom Line
The industry is well poised to benefit from the continued deployment of 5G technologies, fiber optics and massive proliferation of data traffic despite adversities. However, issues related to the global coronavirus pandemic and tense undercurrents between the United States and China regarding its origin as a means of chemical warfare remain latent threats.
Telenav, Inc. : Headquartered in Sunnyvale, CA, this wireless national telecom service provider has a positive earnings surprise of 77.1%, on average, in the trailing four quarters. The Zacks Consensus Estimate for the current fiscal-year earnings has moved up 175% over the past year.
The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: TNAV
Cogent Communications Holdings, Inc. (CCOI - Free Report) : Founded in 1999 and based in Washington, DC, this wireless national telecom service provider has a trailing four-quarter positive surprise of 15.9%, on average. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #2 (Buy) stock has moved up 7.3% over the past 60 days. Cogent has a long-term earnings growth expectation of 11.5% and has gained a solid 53.8% in the past year.
Price and Consensus: CCOI
Liberty Global PLC (LILA - Free Report) : Based in Denver, CO, this wireless national telecom service provider’s shares have gained a solid 52.3% in the past year. The Zacks Consensus Estimate for next fiscal-year earnings for this Zacks Rank #2 stock has moved up 81.8% since June 2019.
Price and Consensus: LILA
CenturyLink, Inc. : Based in Monroe, LA, this wireless national telecom service provider has a trailing four-quarter positive surprise of 8.8%, on average. The Zacks Consensus Estimate for the current fiscal-year earnings has moved up 8.1%, while that for the next fiscal has grown 5.5% since August-end 2019. This Zacks Rank #3 (Hold) stock has a long-term earnings growth expectation of 6.9%.
Price and Consensus: CTL
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.
This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.
See their latest picks free >>