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3 Wireless Stocks Likely to Profit From Healthy Demand Trends
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The Zacks Wireless National industry is likely to benefit from healthy demand trends with an accelerated 5G rollout and increased fiber densification, helping bridge the digital divide with seamless connectivity. However, high capital expenditures for infrastructure upgrades, margin erosion, inflationary pressures, supply-chain disruptions albeit at a diminishing pace and high customer inventory levels have dented the industry’s profitability.
Nevertheless, T-Mobile US Inc. (TMUS - Free Report) , AT&T Inc. (T - Free Report) and Gogo Inc. (GOGO - Free Report) are likely to gain from higher demand for scalable infrastructure for sustainable network development and fostering innovation with a wide proliferation of IoT, healthy wireless traction and solid broadband momentum.
Industry Description
The Zacks Wireless National industry primarily comprises firms 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, targeted advertising, television, streaming content, cable networks and publishing operations, multiprotocol label switching networking, fiber optic long-haul networks and 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 where required and are most effective — whether in the cloud, the network, or on their premises.
What's Shaping the Future of the Wireless National Industry?
Evolving 5G Ecosystem: Most 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 infrastructure upgrades. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. Further, leading firms within the industry have been deploying the C-Band spectrum to gain additional coverage. These mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in rural and urban areas compared with mmWave. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.
Shrinking Margins: 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 in a challenging macroeconomic environment are eroding profits. A steady decline in linear TV subscribers and legacy services due to a challenging macroeconomic environment 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 Rationalization: The industry participants are realigning their wireless network toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The industry players are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby boosting end-to-end provisioning time and driving standardization. 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.
Inflated Costs: 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 Bright Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #99, which places it in the top 40% 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 rosy 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 wireless national 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 Lags S&P 500, Sector
The Zacks Wireless National industry has lagged the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has jumped 23.2% over this period compared with the S&P 500 and the sector’s growth of 27.7% and 46.1%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 7.98X compared with the S&P 500’s 20.09X. It is also below the sector’s trailing 12-month EV/EBITDA of 21.42X.
Over the past five years, the industry has traded as high as 8.93X, as low as 5.46X and at the median of 7.15X, as the chart below shows.
Trailing 12-Month enterprise value-to-EBITDA (EV/EBITDA) Ratio
3 Wireless National Stocks to Keep a Close Eye on
T-Mobile: Headquartered in Bellevue, WA, T-Mobile is a leading national wireless service provider. The company offers services under the T-Mobile, Metro by T-Mobile and Sprint brands. T-Mobile is benefiting from industry-leading postpaid customer growth with a record-low churn rate. The company’s dedicated 5G spectrum assets with superior propagation and a strong emphasis on customer experience are supporting the top line. Its Ultra Capacity 5G network is powered by the mid-band 2.5 GHz spectrum, which delivers superfast speed, covers more than 330 million people and ensures a superior 5G experience. The stock has gained 29.6% over the past year. It has a long-term earnings growth expectation of 28.5% and delivered an earnings surprise of 2.5%, on average, in the trailing four quarters. T-Mobile carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: TMUS
AT&T: Based in Dallas, TX, AT&T is the second-largest wireless service provider in North America and one of the world’s leading communications service carriers. The company offers a wide range of communication and business solutions that include wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services. AT&T has spun off its media assets and merged them with the complementary assets of Discovery to focus on core businesses. With a customer-centric business model, AT&T is witnessing healthy momentum in its postpaid wireless business with a lower churn rate and increased adoption of higher-tier unlimited plans. This Zacks Rank #3 stock has a long-term earnings growth expectation of 2.4% and delivered an earnings surprise of 2.1%, on average, in the trailing four quarters. With a VGM Score of B, the stock has gained 22.9% over the past year.
Price and Consensus: T
Gogo: Founded in 1991 and headquartered in Chicago, IL, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divestiture of the commercial in-flight connectivity division, the company has restructured its business model to focus more on its core operations. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. This Zacks Rank #3 stock delivered an earnings surprise of 60.9%, on average, in the trailing four quarters.
Price and Consensus: GOGO
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3 Wireless Stocks Likely to Profit From Healthy Demand Trends
The Zacks Wireless National industry is likely to benefit from healthy demand trends with an accelerated 5G rollout and increased fiber densification, helping bridge the digital divide with seamless connectivity. However, high capital expenditures for infrastructure upgrades, margin erosion, inflationary pressures, supply-chain disruptions albeit at a diminishing pace and high customer inventory levels have dented the industry’s profitability.
Nevertheless, T-Mobile US Inc. (TMUS - Free Report) , AT&T Inc. (T - Free Report) and Gogo Inc. (GOGO - Free Report) are likely to gain from higher demand for scalable infrastructure for sustainable network development and fostering innovation with a wide proliferation of IoT, healthy wireless traction and solid broadband momentum.
Industry Description
The Zacks Wireless National industry primarily comprises firms 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, targeted advertising, television, streaming content, cable networks and publishing operations, multiprotocol label switching networking, fiber optic long-haul networks and 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 where required and are most effective — whether in the cloud, the network, or on their premises.
What's Shaping the Future of the Wireless National Industry?
Evolving 5G Ecosystem: Most 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 infrastructure upgrades. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. Further, leading firms within the industry have been deploying the C-Band spectrum to gain additional coverage. These mid-band airwaves offer significant bandwidth with better propagation characteristics for optimum coverage in rural and urban areas compared with mmWave. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage and speed.
Shrinking Margins: 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 in a challenging macroeconomic environment are eroding profits. A steady decline in linear TV subscribers and legacy services due to a challenging macroeconomic environment 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 Rationalization: The industry participants are realigning their wireless network toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The industry players are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby boosting end-to-end provisioning time and driving standardization. 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.
Inflated Costs: 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 Bright Prospects
The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #99, which places it in the top 40% 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 rosy 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 wireless national 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 Lags S&P 500, Sector
The Zacks Wireless National industry has lagged the S&P 500 composite and the broader Zacks Computer and Technology sector over the past year.
The industry has jumped 23.2% over this period compared with the S&P 500 and the sector’s growth of 27.7% and 46.1%, respectively.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 7.98X compared with the S&P 500’s 20.09X. It is also below the sector’s trailing 12-month EV/EBITDA of 21.42X.
Over the past five years, the industry has traded as high as 8.93X, as low as 5.46X and at the median of 7.15X, as the chart below shows.
Trailing 12-Month enterprise value-to-EBITDA (EV/EBITDA) Ratio
3 Wireless National Stocks to Keep a Close Eye on
T-Mobile: Headquartered in Bellevue, WA, T-Mobile is a leading national wireless service provider. The company offers services under the T-Mobile, Metro by T-Mobile and Sprint brands. T-Mobile is benefiting from industry-leading postpaid customer growth with a record-low churn rate. The company’s dedicated 5G spectrum assets with superior propagation and a strong emphasis on customer experience are supporting the top line. Its Ultra Capacity 5G network is powered by the mid-band 2.5 GHz spectrum, which delivers superfast speed, covers more than 330 million people and ensures a superior 5G experience. The stock has gained 29.6% over the past year. It has a long-term earnings growth expectation of 28.5% and delivered an earnings surprise of 2.5%, on average, in the trailing four quarters. T-Mobile carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: TMUS
AT&T: Based in Dallas, TX, AT&T is the second-largest wireless service provider in North America and one of the world’s leading communications service carriers. The company offers a wide range of communication and business solutions that include wireless, local exchange, long-distance, data/broadband and Internet, video, managed networking, wholesale and cloud-based services. AT&T has spun off its media assets and merged them with the complementary assets of Discovery to focus on core businesses. With a customer-centric business model, AT&T is witnessing healthy momentum in its postpaid wireless business with a lower churn rate and increased adoption of higher-tier unlimited plans. This Zacks Rank #3 stock has a long-term earnings growth expectation of 2.4% and delivered an earnings surprise of 2.1%, on average, in the trailing four quarters. With a VGM Score of B, the stock has gained 22.9% over the past year.
Price and Consensus: T
Gogo: Founded in 1991 and headquartered in Chicago, IL, Gogo is a premier global provider of network and broadband connectivity products and services for the business aviation market. With the divestiture of the commercial in-flight connectivity division, the company has restructured its business model to focus more on its core operations. The transformative sale agreement has unlocked new business opportunities for Gogo within the business aviation market and has improved its liquidity position. This Zacks Rank #3 stock delivered an earnings surprise of 60.9%, on average, in the trailing four quarters.
Price and Consensus: GOGO