For Immediate Release
Chicago, IL – February 18, 2021 – Today, Zacks Equity Research discusses Wireless Equipment, including Aviat Networks, Inc. (
AVNW Quick Quote AVNW - Free Report) , Sonim Technologies, Inc. ( SONM Quick Quote SONM - Free Report) , Qualcomm Inc. ( QCOM Quick Quote QCOM - Free Report) , Juniper Networks Inc. ( JNPR Quick Quote JNPR - Free Report) and Motorola Solutions, Inc. ( MSI Quick Quote MSI - Free Report) .
Wireless Equipment industry appears to be relatively well placed despite certain macroeconomic challenges, providing vital lifeline to millions to stay connected in the digital world as the pandemic has redefined the broader industry metrics. However, large-scale investments to support the transition to 5G, high R&D and raw material costs amid the coronavirus-induced turmoil remain deterrents.
Aviat Networks and Sonim Technologies are likely to benefit in the long run from the increasing demand for state-of-the-art wireless products and services with a wide proliferation of IoT driven by faster pace of 5G deployment. Industry Description
The Zacks Wireless Equipment industry primarily comprises companies that provide various networking solutions, wireless telecom products and related services for wireless voice and data communications through scalable modular platforms.
The firms within this industry are driving the transition of global enterprises to smart virtual networks by creating an integrated network for all services, converging mobile and fixed broadband, IP routing and optical networks with software and services to manage them. Their product portfolio encompasses integrated circuit devices (chips) and system software for wireless voice and data communications, analog and digital two-way radio, satellite telecommunications, wireless networking and signal processing equipment and end-to-end enterprise mobility solutions.
In addition, the firms provide a broad range of routing, switching and security products, along with video surveillance and machine-to-machine communication components, that secure VPN appliances, enable intrusion detection and thwart data theft for seamless transfer.
The industry participants facilitate users to shift their telecom networks to the latest 5G standards, including new use cases like IoT, public safety and fixed wireless access. Along with hands-on field service operations to remote network operations, the firms offer IT managed services for the management of applications and data centers, while network design and optimization services develop and expand user networks, per demand. Apart from offering scalable networks that securely connect everyone and everything to the cloud, the firms help customers transform their operations and reduce the complexity of business.
Some firms within the industry even provide electronic warfare, avionics, robotics, advanced communications and maritime systems to the defense industry. A few industry participants offer air traffic management solutions for the civil aviation industry and analytics for global and space situational awareness and Earth observation missions. Some notable firms within the industry are
Qualcomm, Juniper Networks and Motorola Solutions. What’s Shaping the Future of Wireless Equipment Industry The coronavirus pandemic has forced the larger American population to shift almost everything — elementary schools, colleges, workplaces, shopping, dining, entertainment and even funeral — to the online domain to reduce exposure to this deadly disease. As people are forced to seek refuge in the safety of their homes, digital sustainability has become the norm of the day. Digital Sustainability:
With the exponential growth of mobile broadband, user demand for coverage speed and quality has increased. This has resulted in huge demand for advanced networking architecture, in turn, leading service providers to spend more on routers and switches. Hence, these companies are likely to benefit from the higher spending pattern among carriers to upgrade their networks to support the incremental growth in home data traffic.
Further, to maintain superior performance as traffic increases, there is a continuous need for network tuning and optimization, creating demand for state-of-the-art wireless products and services. Also, the industry participants are likely to benefit from expanding media coverage, increasing demand for reliable access and fast-data services, thereby broadening the customer base and translating into higher revenues for the overall industry.
The continued deployment of 5G technology across the globe is likely to propel the industry to newer heights. Moreover, 5G is expected to augment the scalability, security and universal mobility of the telecommunications industry, which is expected to propel the wide proliferation of IoT. The industry participants are facilitating its customers to move away from an economy-of-scale network operating model to demand-driven operations and seamlessly migrate to 5G by offering easy programmability and flexible automation through steady infrastructure investments. Near-Term Profitability Compromised:
Although these investments will eventually help minimize service delivery costs to support broadband competition and wireless densification, short-term profitability has largely been compromised. Margins are likely to be affected by high cost levels associated with the first generation 5G products, profitability challenges in China and pricing pressure in early 5G deals.
Majority of the industry participants offer mission-critical communication infrastructure, devices, accessories, software and services that enable its customers to run businesses with increased efficiency and safety for their mobile workforce. These systems drive demand for additional device sales, software upgrades, infrastructure overhaul and expansion as well as additional services to maintain, monitor and manage these complex networks and solutions. Pent Up Demand for Avant Garde Networking Architecture:
The comprehensive suite of services ensures continuity and reduces risks for constant critical communication operations. However, paucity of demand due to geopolitical uncertainties and a challenging macroeconomic environment have dented the margins of most industry participants.
Intense price wars due to rising costs of raw materials and stiff competition have added to the woes. High technological obsolescence of most products has also escalated operating costs with continuous investments in R&D.
Zacks Industry Rank Indicates Bullish Prospects
The Zacks Wireless Equipment industry is housed within the broader Zacks
Computer and Technology sector. It carries a Zacks Industry Rank #107, which places it at the top 42% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dim 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 a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are reposing faith in this group’s earnings growth potential. While the industry’s earnings estimates for the current year have increased 101.6% since October-end, the same for 2021 has improved an astronomical 1238.5% over the past year.
Before we present a few wireless equipment 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 Sector, S&P 500
The Zacks Wireless Equipment industry has surpassed the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has gained 45.1% over this period compared with the S&P 500 and sector’s rally of 18.7% and 43.1%, respectively.
Industry’s Current Valuation
On the basis of 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 19.56X compared with the S&P 500’s 16.67X. It is also above the sector’s trailing-12-month EV/EBITDA of 18.03X.
Over the past five years, the industry has traded as high as 30X and as low as 11.05X and at the median of 18.1X.
3 Wireless Equipment Stocks to Keep a Close Eye on Clearfield: Headquartered in Minneapolis, MN, Clearfield designs, manufactures and markets fiber optic products for communication networks. This Zacks Rank #2 (Buy) stock has gained 213.4% in the past year compared with the industry’s growth of 43.2%. The Zacks Consensus Estimate for current-year earnings has been revised 66.7% upward over the past year.
The company is witnessing increased traction from leading carriers for 5G-related applications. In addition, with higher rural broadband exposure, Clearfield is likely to gain from the FCC-driven Rural Digital Opportunity Fund (RDOF) auctions. You can see
. the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here Aviat Networks: Headquartered in Austin, TX, Aviat is a leading provider of communication networks, telecom services and support solutions. This Zacks Rank #1 stock has gained a stellar 404.5% in the trailing 12 months. The Zacks Consensus Estimate for current-year earnings has been revised 171.9% upward since May 2020. The company is witnessing healthy momentum in its business, courtesy of a multi-million rural broadband win with Nextlink Internet, one of several top RDOF award recipients, as well as a significant deal in mobile 5G with a U.S.-based Tier 1 operator for microwave transport. Sonim Technologies: Headquartered in Austin, TX, Sonim is a leading provider of mobility solutions for mission-critical operations. This Zacks Rank #2 stock has gained 58.6% in the past six months. The Zacks Consensus Estimate for current-year earnings has been revised 42.5% upward since May 2020. The company is increasingly focusing on rugged hybrid handset components with higher durability standards and is gradually shifting from legacy products. With a disruptive pricing methodology, Sonim is likely to sell higher volume of its innovative products through new distribution channels. Legal Marijuana: An Investor’s Dream
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