Yahoo Finance 3 Wireless Non-US Stocks to Buy Despite Industry Challenges
The Zacks Wireless Non-US industry appears to be mired in high capital expenditure for infrastructure upgrades, margin erosion, supply-chain disruptions due to geopolitical conflicts, raging wars and high customer inventory levels. However, healthy demand trends stemming from the increasing propensity to stay connected in this digital age should benefit the industry in the long run.
SK Telecom Co., Ltd. SKM, KT Corporation KT and Ceragon Networks Ltd. CRNT are likely to capitalize on the rising demand for scalable infrastructure for seamless connectivity of wireless and fiber networks, with the wide proliferation of IoT and accelerated 5G deployment.
Industry Description
The Zacks Wireless Non-US industry comprises mobile telecommunications and broadband service providers based on foreign shores. These companies primarily offer voice services, including local, domestic and international calls, roaming services, and prepaid and postpaid services. The firms provide value-added services, such as the 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?
Demand Erosion for Legacy Services: 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 making significant investments to upgrade their network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture.
Network Convergence: 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. Further, 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. Moreover, telecom services show a weak correlation to macroeconomic factors as these are considered necessities. This, in turn, has led the carriers to focus more on network upgrades to cater to the evolving customer needs.
Margin Woes Persist: High raw material prices due to the Middle-East tensions, 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 due to 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.
Zacks Industry Rank Indicates Bearish Trends
The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #236, which places it in the bottom 5% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the 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-US wireless stocks that you may want to consider for your portfolio, let us 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 lagged the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has declined 10.4% over this period against the S&P 500’s and sector’s rise of 26.4% and 42.6%, 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 4.97X compared with the S&P 500’s 19.79X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 20.81X.
Over the past five years, the industry has traded as high as 12.33X and as low as 1.43X, with a median of 5.83X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past 5 Years)
3 Non-US Wireless Stocks to Keep a Close Eye on
SK Telecom: Headquartered in Seoul, the company provides wireless telecommunication services in South Korea and globally. Together with its affiliates, it operates diverse Information and Communications Technology (“ICT”) businesses. With capabilities in 5G, AI, Big Data analysis and quantum cryptography communications, SK Telecom is strengthening its position as a global ICT leader. It has embarked on the 'AI Pyramid Strategy' to accelerate innovation centered around three key areas — AI Infrastructure, AI Transformation and AI Service. It has a long-term earnings growth expectation of 3.5% and a VGM Score of B. SK Telecom currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: SKM
KT Corp: Headquartered in Seongnam, South Korea, the company is the largest integrated telecom and digital platform service provider in the Southeast Asian country. It offers mobile, broadband, B2B communications and fixed-line telephony, with an industry-leading market presence in broadband and fixed-line services. KT Corp offers a plethora of digital transformation services and boasts a well-balanced portfolio of diverse subsidiaries focusing on media/content, financial services, real estate developments and commerce industries. KT is leading the fourth industrial revolution with high-speed wireless networks and new ICT technology. It is increasingly focusing on digital health, AI, Big Data, cloud and robotics as its next leading businesses. This Zacks Rank #3 (Hold) stock has gained 15.4% in the past year. The company has a long-term earnings growth expectation of 8%, with a VGM Score of A.
Price and Consensus: KT
Ceragon: Headquartered in Rosh HaAyin, Israel, Ceragon provides wireless backhaul and fronthaul solutions that enable cellular operators and other wireless service providers to increase operational efficiency. Its solutions use microwave and millimeter wave radio technology to transfer telecommunication traffic between base stations, small/distributed cells and the core of the service provider's network. This Zacks Rank #2 stock offers highly reliable, fast-to-deploy, high-capacity wireless transport for 5G and 4G networks with minimal use of spectrum, power, real estate and labor resources. Ceragon delivers a complete portfolio of turnkey end-to-end AI-based managed and professional services that ensure efficient network rollout and optimization. With a VGM Score of A, this stock has gained 31.2% in the past year.
Price and Consensus: CRNT
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
SK Telecom Co., Ltd. (SKM) : Free Stock Analysis Report
KT Corporation (KT) : Free Stock Analysis Report
Ceragon Networks Ltd. (CRNT) : Free Stock Analysis Report
