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The Zacks Wireless Non-US industry is navigating a challenging environment marked by elevated infrastructure investments, margin pressure, supply chain disruptions due to geopolitical instability, ongoing global conflicts and elevated customer inventory levels. Nevertheless, secular demand for high-speed wireless and fiber services remains intact, fueled by increasing digitalization, expanding IoT adoption and continued 5G rollouts.In this backdrop, America Movil, S.A.B. de C.V. (AMX - Free Report) , SK Telecom Co., Ltd. (SKM - Free Report) and SoftBank Group Corp. (SFTBY - Free Report) are likely to gain from significant long-term growth opportunities and are well positioned to capitalize on robust demand for advanced connectivity solutions and next-generation network services.
Industry Description The Zacks Wireless Non-US industry comprises overseas providers of mobile telecommunications and broadband services. These companies primarily offer voice services, including local, domestic and international calls, roaming services and prepaid and postpaid. The firms provide value-added services, such as 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? Waning 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 Optimization: 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. 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. 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.
Depleting Margins: High raw material prices due to the Iran war, on-again-off-again shipping restrictions in the Strait of Hormuz, soaring energy prices, 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 #184, which places it in the bottom 26% 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’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Outperforms S&P 500, Sector The Zacks Wireless Non-US industry has outperformed the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has soared 37.2% over this period compared with the S&P 500’s and sector’s rise of 20% and 28.4%, 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 5.39X compared with the S&P 500’s 18.5X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 20.43X.
Over the past five years, the industry has traded as high as 11.23X and as low as 3.1X, with a median of 5.31X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Non-US Wireless Stocks to Buy América Móvil: Based in Mexico City, America Movil is the leading provider of integrated telecommunications services in Latin America. It offers enhanced communications solutions in 25 countries in Latin America, the United States and Central and Eastern Europe. America Movil’s principal markets are Mexico and Brazil, the two largest economies in Latin America. The company’s biggest subsidiary, Telcel, is the largest wireless service provider in Mexico. The Zacks Consensus Estimate for its current-year and next-year earnings has been revised 19.3% and 22.5% upward, respectively, over the past year. The stock has gained 41.5% in the past year. It has a VGM Score of B. America Movil 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: AMX
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, artificial intelligence (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 gained 57% in the past year. This Zacks Rank #2 company has long-term earnings growth expectations of 59.1% and has a VGM Score of B.
Price and Consensus: SKM
SoftBank: Headquartered in Tokyo, Japan, SoftBank provides telecommunication services in Japan and internationally. The company is evolving from a traditional telecommunications carrier into an AI infrastructure provider, enabling intelligence across distributed edge and cloud environments so that devices, robots and connected systems can operate beyond their standalone capabilities. This Zacks Rank #2 company has gained 71.2% in the past year.