Solid Wireless National Outlook Exudes Positivity Amid Gloom

The Zacks Wireless National industry primarily comprises companies 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, multiprotocol label switching networking, data center and managed services, fiber optic long-haul network, 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 to where it is required and most effective — whether in the cloud, the network or on their premises.

Few firms within the industry offer targeted advertising services, leveraging data insights to reach specific audiences in trusted, premium content environments. Some even provide film, television, streaming content, cable networks and publishing operations with significant media assets in their portfolio. Few industry participants further offer wireless devices, such as smartphones, tablets and other mobile communication devices and accessories manufactured by various suppliers. Some notable firms within the industry are AT&T Inc. (T), T-Mobile US, Inc. (TMUS) and Verizon Communications Inc. (VZ).

Here are the three major themes in the industry:

•    The firms within the industry are increasingly seeking diversification from legacy telecom services to more business, enterprise and wholesale opportunities. Consequently, the companies are making significant investments to upgrade network and product portfolio, including considerable advances in software-defined, wide-area network capabilities and a new Cloud Core architecture. This has realigned the companies’ wireless network toward a software-centric model to cater to increasing business demands and customer needs through remote facilities. The companies are focused on bringing improved operational efficiencies through network simplification and rationalization, thereby improving end-to-end provisioning time and driving standardization. Also, these firms are offering the flexibility to better manage data traffic by leveraging indigenous software-defined networks to enable low-latency, high-bandwidth applications for faster access to data processing. Utilizing machine learning techniques and edge computing, these networks are likely to transform the way data-intensive images and videos are transferred across the industry on a real-time basis. All these efforts have particularly helped firms in the industry to cater to the upsurge in data demand, with digital sustainability becoming the norm of the day as majority of the population is forced to work from the safety of their homes to avert being exposed to the deadly virus.

•    Most of the 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 an infrastructure upgrade. The companies are also expanding their fiber optic networks to support 4G LTE and 5G wireless standards as well as wireline connections. The fiber-optic cable network is vital for backhaul and the last mile local loop, which are required by wireless service providers for 5G deployment. Fiber networks are also essential for the growing deployment of small cells that bring the network closer to the user and supplement macro networks to provide extensive coverage. Further, leading firms within the industry are increasingly deploying next-generation 5G wireless residential broadband services in multiple U.S. markets. However, the momentum has been slightly hampered in some cities due to longer approval time for infrastructure setups, like small cells, along with other necessary permits and changes. In addition, remote working procedures due to social-distancing measures and temporary closures of permitting offices somewhat delayed the full-phased commercial 5G wireless services. As the 5G ecosystem evolves, customers are expected to experience significant enhancements in coverage, speeds and devices.

•    The industry participants are taking a holistic approach to content delivery in order to help providers anticipate demand for more personalized, relevant and on-the-go experiences. 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. In addition, some sector firms are reinventing online advertising by pooling a unique set of assets — valuable consumer data and insights, advanced advertising capabilities and engaged passionate fanbases. This has led to a faster turnaround of advertising campaigns, enabling marketers to access and understand the efficacy of these messages in weeks instead of months. These, in turn, are giving a new dimension to the business models.

Overall, the industry appears poised to benefit from healthy growth dynamics, favorable factors and inherent sector strength despite the coronavirus-induced dim and gloom.

Zacks Industry Rank Indicates Bullish Prospects

The Zacks Wireless National industry is housed within the broader Zacks Computer and Technology sector. It carries a Zacks Industry Rank #102, which places it at the top 40{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} 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 encouraging prospects. Our research shows that the top 50{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} of the Zacks-ranked industries outperform the bottom 50{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} by a factor of more than 2 to 1. The industry’s positioning in the top 50{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate.

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 broader Zacks Computer and Technology sector and the S&P 500 composite over the past year due to COVID-19 woes, despite underlying solid growth potential.

The industry has gained 4.9{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over this period compared with the S&P 500 composite and the sector’s rise of 9.3{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} and 26.6{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, respectively.

One Year Price Performance

Industry’s Current Valuation

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is the most appropriate multiple for valuing telecom stocks, the industry is currently trading at 6.08X compared with the S&P 500’s 12.19X. It is also below the sector’s trailing-12-month EV/EBITDA of 13.3X.

Over the past five years, the industry has traded as high as 11.55X and as low as 5.41X and at the median of 6.71X, as the chart below shows.

Trailing 12-Month enterprise value-to EBITDA (EV/EBITDA) Ratio

Bottom Line

The industry is well poised to benefit from the continued deployment of 5G technologies, fiber optics and massive proliferation of data traffic despite adversities. However, issues related to the global coronavirus pandemic and tense undercurrents between the United States and China remain latent threats.

T-Mobile US, Inc.: Headquartered in Bellevue, WA, this wireless national telecom service provider delivered an earnings surprise of 19.4{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, on average, in the trailing four quarters. The Zacks Consensus Estimate for the next fiscal-year earnings has moved up 45.5{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} since April-end.

With a long-term earnings growth expectation of 19.6{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, the stock has gained a solid 30.8{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in the past year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: TMUS

Cogent Communications Holdings, Inc. (CCOI): Founded in 1999 and based in Washington, DC, this wireless national telecom service provider has a trailing four-quarter earnings surprise of 15.9{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, on average. The Zacks Consensus Estimate for next fiscal-year earnings for this Zacks Rank #2 (Buy) stock has moved up 1.5{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over the past 60 days. Cogent has a long-term earnings growth expectation of 10.6{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} and gained a solid 35.1{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in the past year.

Price and Consensus: CCOI

Cambium Networks Corporation (CMBM): Based in Rolling Meadows, IL, this wireless national telecom service provider’s shares have gained a healthy 21.1{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} in the past year. The Zacks Consensus Estimate for current fiscal-year earnings for this Zacks Rank #2 stock has moved up 40{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over the past 30 days.

Price and Consensus: CMBM

Telenav, Inc. (TNAV): Headquartered in Sunnyvale, CA, this wireless national telecom service provider has an earnings surprise of 108.3{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9}, on average, in the trailing four quarters. The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) stock for the current fiscal-year earnings has moved up 162.9{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} over the past year.

Price and Consensus: TNAV

Zacks’ Single Best Pick to Double

From thousands of stocks, 5 Zacks experts each picked their favorite to gain +100{cb3fe4c54de06d7c4b8dceae281fb32e521027d1659af7adec2f427d2f5333d9} or more in months to come. From those 5, Zacks Director of Research, Sheraz Mian hand-picks one to have the most explosive upside of all.

With users in 180 countries and soaring revenues, it’s set to thrive on remote working long after the pandemic ends. No wonder it recently offered a stunning $600 million stock buy-back plan.

The sky’s the limit for this emerging tech giant. And the earlier you get in, the greater your potential gain.

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