The global telecom industry is rapidly transforming with carriers upgrading to 5G service which will increase capacity and bandwidth. Furthermore, given the rising dependence on the internet, especially amid the remote lifestyle, the 5G wave is expected to completely radicalize the global telecom industry. As a result, the global telecom services market is expected to grow at a CAGR of 5.4% between 2021 and 2028.
Investors have been betting on telecom stocks amid the gradual 5G network commercialization, which is expected to be the next big thing in the tech space. This is evident from the SPDR S&P Telecom ETF’s (XTL) 41% gains over the past year compared to the broader SPDR S&P 500 ETF Trust (SPY) 32% returns.
Given this backdrop, global telecom stocks Telefónica, S.A. (TEF), Telia Company AB (TLSNY), Telefônica Brasil S.A. (VIV), and Turkcell Iletisim Hizmetleri A.S. (TKC), which are currently trading under $10, could be solid bets now.
Telefónica, S.A. (TEF)
TEF is a multinational telecommunication service provider in Europe and Latin America. Its services include internet and broadband access as well as television subscription facilities. The company is headquartered in Madrid, Spain.
On September 15, TEF launched the Rakuten Living App in Spain’s Movistar + TV through a partnership with the Japan-based internet services company Rakuten Group, Inc. (RKUNY). The app will allow users to broadcast live events on TV and buy tickets for shows. This should boost TEF’s existing customer base.
On September 14, TEF announced that it had become the distribution partner of Zoom Video Communications, Inc. (ZM). The company distributes ZM’s services of Zoom Meetings, Zoom Webinars, Zoom Phone, and Zoom Rooms. Regarding this, José Cerdán, CEO of Telefónica Tech, said, "The agreement with Zoom is another example of the commitment we have at Telefónica Tech to integrate the most innovative services and products to accompany companies in their digital transformation."
In the second fiscal quarter ended June 2021, TEF’s OIBDA margin rose 103.1 percentage points year-over-year to 135.2%. Operating income increased 999% from the prior-year quarter to €11.35 billion ($13.37 billion). Profit before taxes came in at €10.98 billion ($12.93 billion), up 1,433.1% from the same period last year, while EPS attributable to equity holders increased 1,857.1% year-over-year to €1.37.
The consensus EPS estimate of $0.33 for the next year (fiscal 2022) indicates a 6% year-over-year increase. Moreover, TEF has topped consensus revenue estimates in three out of the trailing four quarters, which is impressive. TEF’s stock has gained 28.8% over the past year to close yesterday’s trading session at $4.88.
TEF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
TEF has a Value grade of A and a Growth and Stability grade of B. In the 49-stock Telecom – Foreign industry, it is ranked #11. And this industry is rated A.
Click here to see the additional POWR Ratings for TEF (Momentum, Sentiment, and Quality).
Telia Company AB (TLSNY)
TLSNY is a communication provider based in Solna, Sweden. The company provides broadband and telephone services to individuals and businesses in several European nations.
On August 20, TLSNY collaborated with Ekobot, a producer of autonomous field robots, to develop a new autonomous robot model powered by the former’s 5G services. This collaboration is expected to boost TLSNY’s profit margins.
In the same month, TLSNY partnered with Microsoft Corporation (MSFT) to manage network services for Microsoft Azure. About this partnership, Erik Asplund, Head of Connectivity at TLSNY, said, “This designation shows Telia’s commitment to supporting its business customers on their journey to the cloud,”
TLSNY’s net sales increased slightly year-over-year to SEK21.88 billion ($2.54 billion) in the second fiscal quarter from April to June. Total net income and EPS came in at SEK8.1 billion ($940.40 million) and SEK1.97, up substantially from their negative year-ago values. The stock has gained 7.1% over the last year to close yesterday’s trading session at $8.48.
It’s no surprise that TLSNY has an overall rating of B, which translates to Buy in our POWR Ratings system. In addition, TLSNY has an A grade for Stability, and a B grade for Quality. It is ranked #14 of 49 stocks in the Telecom – Foreign industry.
In addition to the POWR Rating grades we’ve stated above, one can see TLSNY ratings for Growth, Value, Momentum, and Sentiment here.
Telefônica Brasil S.A. (VIV)
VIV provides fixed and mobile telecommunications services and is headquartered in São Paulo, Brazil. Its services include broadband and data services, IPTV and cable services, and wholesale services catering to corporate customers.
On September 16, VIV became the master sponsor of the electronic sports team SPQR. It is expected to carry out branding actions in the next FIFA 22 season. This sponsorship should reinforce the brand's presence across the region.
For the second fiscal quarter ended June 2021, VIV’s net operating revenue increased 3.2% year-over-year R$10.65 billion ($2.03 billion). EBITDA rose 16.7% year-over-year to R$4.79 billion ($913.36 million), while net income came in at R$1.35 billion ($256.52 million), up 20.9% from the same period last year.
Analysts expect EPS to increase 21.4% year-over-year to $0.17 in the current quarter (ending September 2021). Likewise, the consensus revenue estimate of $2.18 billion reflects an increase of 8.8% from the prior year’s quarter. The stock has gained marginally intra-day to close yesterday’s trading session at $7.89.
VIV has an overall rating of B in our proprietary rating system. In addition, the stock has a Quality grade of A, and a Value and Stability grade of B. It is ranked #12 out of 49 stocks in the same industry.
To see the additional POWR Ratings for Growth, Momentum, and Sentiment for VIV, click here.
Turkcell Iletisim Hizmetleri A.S. (TKC)
TKC is a telecom and technology service provider. Its offerings consist of voice, data, TV, and other value-added operations. The company is headquartered in Turkey.
On August 18, TKC announced that it had completed the process of acquiring Boyut Grup Enerji, a renewable energy source provider. This acquisition is expected to minimize TKC’s carbon footprint.
In the second fiscal quarter ended June 30, TKC’s total revenue increased 23.5% year-over-year to TRY8.55 billion ($1.01 billion), while gross profit rose 22.2% from the same period last year to TRY2.41 billion ($283.95 million). Net income came in at TRY1.11 billion ($131.01 million), up 30.6% from the prior-year quarter and EBITDA increased 22.7% year-over-year to TRY3.47 billion ($408.14 million).
The consensus EPS estimate of $0.82 for the next year (fiscal 2022) indicates a 7% year-over-year increase, and the consensus revenue estimate for the next year of $4.63 billion reflects a 14.1% year-over-year increase. Moreover, TKC has topped consensus revenue estimates in three out of the trailing four quarters. The stock has gained 1.5% over the past month to close yesterday’s trading session at $4.61.
TKC has an overall rating of B. The stock also has a B grade for Value, Stability, and Quality. It is ranked #13 in the same industry.
Click here to see the additional POWR Ratings for TKC (Growth, Momentum, and Sentiment).
TEF shares were trading at $4.88 per share on Friday afternoon, down $0.00 (0.00%). Year-to-date, TEF has gained 24.95%, versus a 18.94% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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