The Zacks Wireless Non-US industry appears well-poised to benefit from healthy demand trends stemming from the increasing propensity to stay connected at the forefront of the digital edge. However, high capital expenditure for infrastructure upgrades, margin erosion, supply-chain disruptions due to geopolitical conflicts, raging wars, and high customer inventory levels have dented the industry’s profitability.

Nevertheless, TIM S.A. (TIMB Quick QuoteTIMB - Free Report) , SK Telecom Co., Ltd. (SKM Quick QuoteSKM - Free Report) and KT Corporation (KT Quick QuoteKT - Free Report) are likely to capitalize on the solid long-term growth opportunities and rising demand for scalable infrastructure for seamless wireless and fiber connectivity, 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?

Network Optimization for Improved Service: The convergence of network technologies requires considerable investments from traditional carriers (telecom and cable) and cloud service providers. With 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.

Inflated Costs Dent Margins: High raw material prices due to the Israel-Hamas conflict, 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.

Focus on Holistic Development: While delivering mission-critical communication services, firms in this industry are undertaking decisive steps to accelerate subscriber additions and improve churn management. They aim to offer exceptional wireless experiences to regular consumers and business customers by providing superior network connectivity. The companies aim to extend their geographical footprints through the development of existing businesses and strategic acquisitions. Wireless carriers are also adopting unlimited plans to enhance average revenue per user. They are focusing on increasing handset connections and customer loyalty to boost revenues and profitability. Furthermore, the industry participants are taking a holistic approach to content delivery. They are offering various pathways for delivering services through a combination of network-based video transcoding and compression technologies to provide IP video formats, live TV and streaming services.

Zacks Industry Rank Indicates Bullish Trends

The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #77, which places it in the top 31% 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 bright 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.

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 lost 11% over this period against the S&P 500’s and sector’s rise of 27.6% 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 6X compared with the S&P 500’s 15.16X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 14.4X.
Over the past five years, the industry has traded as high as 12.34X and as low as 1.43X, with a median of 5.98X, as the chart below shows.

Enterprise Value-to-EBITDA Ratio (Past 5 Years)

3 Non-US Wireless Stocks to Keep a Close Eye on

Tim: Based in Rio de Janeiro, Brazil, the company is one of the leading communication service providers in the Latin American country. It focuses on aggressive 5G rollout throughout the country and reportedly has twice the number of 5G sites than its competitors. With a client base of more than 730,000, Tim’s broadband services are present in more than 70 cities. The company aims to continue using the asset-light model to expand its broadband footprint, while evolving its B2B verticals, bringing IOT connectivity and solutions to Brazil’s infrastructure. Tim has a VGM Score of A. The Zacks Consensus Estimate for its current-year and next-year earnings have been revised 61.2% and 31.2% upward, respectively, over the past year. It has gained 45.2% in the past year. The company has a long-term earnings growth expectation of 24.5%. Tim carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: TIMB

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. This Zacks Rank #2 stock has a long-term earnings growth expectation of 8.6% and a VGM Score of A.

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 robot as its next leading businesses. This Zacks Rank #2 stock has gained 18.9% in the past year. The company has a long-term earnings growth expectation of 5.1%, with a VGM Score of B.

Price and Consensus: KT