Chicago, IL – October 18, 2023 – Today, Zacks Equity Research discusses TIM S.A. TIMB, SK Telecom Co., Ltd. SKM and Ceragon Networks Ltd. CRNT.
Industry: Wireless - Non-U.S.
Link: https://www.zacks.com/commentary/2167021/3-wireless-non-us-stocks-set-to-soar-despite-market-odds
The Zacks Wireless Non-US industry appears well poised to benefit from healthy demand trends to stay connected at the forefront of the digital edge. However, high capital expenditures for infrastructure upgrades, margin erosion, inflationary pressures, supply-chain disruptions due to geopolitical conflicts, raging wars and high customer inventory levels have dented the industry’s profitability.
Nevertheless, TIM S.A., SK Telecom Co., Ltd. and Ceragon Networks Ltd. are likely to gain from significant 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.
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. 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.
Optimization of Network Capabilities: 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 investing 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 evolving customer needs.
Lingering Margin Woes: Uncertainty regarding the chip shortage and supply-chain disruptions extending beyond semiconductors have crippled the manufacturing operations of most firms, leading to curtailed production schedules. This has led to a demand-supply imbalance, as the industry faces a dearth of essential fiber materials, shipping delays and shortages of containers and other raw materials, affecting the expansion and rollout of new broadband networks.
Extended lead times for basic components have negatively impacted the delivery schedules and escalated costs. Moreover, raw material prices have risen significantly owing to economic uncertainty due to the prolonged Russia-Ukraine war, the Israel-Hamas conflict and soft market conditions in China, affecting the short-term profitability of most firms.
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 Growth: While delivering mission-critical communication services, the industry firms are undertaking decisive steps to accelerate subscriber additions and improve churn management. They aim to offer an exceptional wireless experience to consumers and business customers by providing superior network connectivity.
The companies aim to extend their geographical footprint by developing 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.
The Zacks Wireless Non-US industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #91, which places it in the top 36% 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 solid 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.
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 jumped 2.9% over this period compared with the S&P 500’s and sector’s rise of 18.1% and 36.4%, respectively.
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 8.82X compared with the S&P 500’s 12.94X. It is also trading below the sector’s trailing 12-month EV/EBITDA of 12.27X.
Over the past five years, the industry has traded as high as 19.28X and as low as 1.43X, with a median of 6.62X.
Tim: Based in Rio de Janeiro, Brazil, Tim is one of the leading communication service providers in the Latin American country. The company 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 B. The Zacks Consensus Estimate for its current-year and next-year earnings have been revised 47.7% and 25.5% upward, respectively, over the past year. It has gained 34.1% in the past year and has a long-term earnings growth expectation of 20.1%. Tim sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
SK Telecom: Headquartered in Seoul, SK Telecom provides wireless telecommunication services in South Korea and globally. Together with its affiliates, the company 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 recently embarked on 'AI Pyramid Strategy' to accelerate innovation centered around three key areas — AI Infrastructure, AI Transformation and AI Service.
This Zacks Rank #2 (Buy) stock has gained 6.4% in the past year. It has a long-term earnings growth expectation of 9% and has a VGM Score of A.
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. The Zacks Consensus Estimate for its current-year earnings has been revised 57.1% upward over the past year.
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