For Immediate Release
Chicago, IL – April 1, 2021 – Today, Zacks Equity Research discusses Wireless, Non-U.S. including KDDI Corporation (
KDDIY Quick Quote KDDIY - Free Report) , Vodafone Group Plc ( VOD Quick Quote VOD - Free Report) , America Movil, S.A.B. de C.V. ( AMX Quick Quote AMX - Free Report) and SK Telecom Co., Ltd ( SKM Quick Quote SKM - Free Report)
Companies in the Zacks
Wireless Non-US industry are finding it increasingly difficult to upgrade their connectivity infrastructures and focus on providing high quality and affordable services. The wireless carriers are weighed down by the growing churn rate and dwindling revenues with the disruptive rise of over-the-top service providers. These corporations face high depreciation charges due to a large fixed asset base.
Nonetheless, companies like
KDDI Corp., Vodafone, America Movil and SK Telecom are benefiting from the deployment of advanced 4G LTE and 5G technologies and proliferation of data traffic. Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and allied service providers that are based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls and roaming services, prepaid and postpaid, as well as value-added services. They also provide wireless Internet services, together with digital applications such as music, video and animation.
Some of the industry participants sell mobile handsets and accessories through dealer networks and offer co-billing services to other telecommunications service providers. A few firms provide wireless and fixed voice services, including international long-distance services and network interconnection services. These also offer data services such as data centers and hosting services to residential and corporate clients.
What's Shaping the Future of Wireless Non-US Industry Telecom services typically show a weak correlation to macroeconomic factors as these are deemed to be necessities. That said, the wireless operators have been facing severe challenges due to the growing churn rate and declining Average Revenue per User, along with the disruptive rise of over-the-top service providers in this competitive and dynamic industry. Aggressive Competition to Persist:
Price-sensitive competition for customer retention in the core business is expected to become more intense in the coming days. The companies follow an aggressive promotional strategy to increase penetration in the smartphone market. However, these efforts tend to affect profitability in the near term.
Also, mobile operators need to take measures to reduce costs and optimize business operations. Aggressive competition could limit their ability to attract and retain customers and might affect operating and financial results. The impact of the pandemic is causing short-term earnings dilution, largely due to supply-chain disruptions.
The telecommunications industry continues to undergo significant changes driven by technological enhancements. However, one of the biggest challenges is the growing need for capital expenditure. Rising demand will put pressure on operators to invest more in scalable infrastructure and Internet-driven facilities that can support increased traffic and provide quality data services. High Infrastructure Costs Weigh on Margins:
With the availability of new technologies, the quality of services from telecom companies has improved but their profit margins have contracted. With millions of subscribers and a variety of new products, operational support services have become more complex. The cost of handling these operations requires resources that increase overheads.
Service providers need to upgrade their IT and connectivity infrastructures, as well as focus on providing data and voice services that are high quality, reliable and affordable. Security of the networks has become another priority for companies. Massive capital outlay to expand network infrastructure for 5G mobile connectivity is limiting bottom-line growth.
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 and Africa. Markets in developed economies have almost reached saturation levels, preventing carriers from achieving the subscriber growth rates of their counterparts in emerging economies. Market Saturation Remains a Concern:
So operators need to shift their focus from developed markets to emerging economies where there are greater opportunities for expansion of mobile network connections. Success in the wireless service business largely depends on technical superiority, quality of services and scalability. In a saturated wireless market, spectrum crunch has become a major issue.
Most of the operators are finding it difficult to manage mobile data traffic, which is growing by leaps and bounds. The situation has become even more acute with the growing popularity of smart devices as well as the rising online mobile video streaming, cloud computing and video conferencing services.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Wireless Non-US industry, which has 16 constituent companies, is housed within the broader Zacks
Computer and Technology sector. It currently has a Zacks Industry Rank #206, which places it in the bottom 19% of more than 250 Zacks industries.
Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Interestingly, 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 bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. The industry's earnings estimates for the current year have decreased 0.6% in the past three months.
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 Underperforms 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 in the past year.
The industry has gained 1% over this period compared with the S&P 500's rise of 62.8% and the broader sector's rally of 76.3%.
Industry's Current Valuation
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 4.46X compared with the S&P 500's 17.67X. It is also trading below the sector's trailing 12-month EV/EBITDA of 15.92X.
Over the past five years, the industry has traded as high as 22.75X, as low as 3.88X with a median of 14.56X.
4 Non-US Wireless Stocks Trying to Survive Industry Challenges KDDI: Headquartered in Tokyo, KDDI provides telecommunication services in Japan and globally. It operates through four segments — Personal Services, Life Design Services, Business Services and Global Services.
The company is promoting the 'Fusion of Communications and Life Design' by expanding its businesses with a focus on communications. KDDI supports the digital transformation of corporate customers by utilizing technologies such as 5G and IoT.
The Zacks Consensus Estimate for its current-year earnings has remained stable over the past 30 days. The stock has gained 26% in the past six months compared with the industry's 2.4% growth. KDDI currently carries a Zacks Rank #3 (Hold). You can see
. the complete list of today's Zacks #1 Rank (Strong Buy) stocks here Vodafone: Headquartered in Newbury, the UK, Vodafone engages in telecommunication services in Europe and worldwide. The company operates mobile and fixed networks in 21 countries and partners with mobile networks in 48 more. Its M-Pesa technology platform in Africa enables more than 42 million people to benefit from access to mobile payments and financial services.
As of Dec 31, 2020, the company had more than 300 million mobile customers, 27 million fixed broadband customers and 22 million TV customers. The consensus estimate for its current-year earnings has been revised 3.8% upward over the past 30 days. The stock has returned 40.2% in the past six months. Vodafone has a Zacks Rank #3.
America Movil: Based in Mexico, America Movil provides telecommunication services in Latin America and internationally. The company is working on the development of alternatives to reap more benefits from its tower assets while boosting shareholders' value and reducing debt.
It offers customers a portfolio of value-added services and enhanced communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. The consensus estimate for its current-year earnings has been revised 20.5% upward over the past 30 days. The stock has moved up 12.7% in the past six months. America Movil has a Zacks Rank #3.
SK Telecom: Headquartered in Seoul, SK Telecom provides wireless telecommunication services in South Korea. Together with its affiliates, the company operates diverse Information and Communications Technology (ICT) businesses from telecommunication businesses to new ICT businesses including media, security, IoT and mobility.
With capabilities in 5G, AI, Big Data analysis and quantum cryptography communications, SK Telecom is strengthening its position as a global ICT leader. The consensus estimate for its current-year earnings has been revised 10.8% upward over the past 60 days. The stock has added 17.5% in the past six months. SK Telecom carries a Zacks Rank #2 (Buy).
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