Globally, growing digital transformation across industries plays a pivotal role in driving the demand for telecom services. The industry is well-positioned to witness significant growth and expansion in the foreseeable future as it constantly adapts to meet the increasing connectivity and communication needs of businesses and consumers in the digital era.
Given the industry’s bright prospects, it could be wise to invest in fundamentally strong telecom stocks Internet Initiative Japan Inc. (IIJIY), IDT Corporation (IDT), and Spok Holdings, Inc. (SPOK) with solid market performance.
Owing to robust spending on next-gen wireless communication setups due to the shift in the preferences toward 5G networks and cloud-based technologies is driving the demand for telecom services. With the rise of digitalization, there is a rapid surge in data consumption driven by digital activities, including video streaming, social media, and online shopping.
In recent years, the transition toward remote work and virtual collaboration tools has increased demand for reliable and high-bandwidth communication solutions, propelling the telecom industry’s prospects. The global telecom services market is expected to grow at a CAGR of 4.9% by 2030.
Furthermore, telecom companies are increasingly utilizing cutting-edge technologies such as artificial intelligence (AI) for communication automation and agility. They also leverage AI to enhance customer experience, network operation monitoring and management, fraud mitigation, predictive maintenance, and cybersecurity.
The global telecom AI market is forecasted to reach $11.29 billion by 2030, growing at a CAGR of 28.2%.
Additionally, Investors’ interest in telecom stocks is evident from the SPDR S&P Telecom ETF’s (XTL) 6.7% returns over the past six months.
Considering these conducive trends, let’s assess the fundamentals of the three telecom industry stock picks: IIJIY, IDT, and SPOK.
Internet Initiative Japan Inc. (IIJIY)
Headquartered in Tokyo, Japan, IIJIY provides Internet connectivity, WAN, outsourcing, systems integration, and network-related equipment sales services. The company operates through two segments: Network Services and Systems Integration Business; and ATM Operation Business.
The company distributes an annual dividend of $0.48, which yields 1.23% on the current market price, higher than the four-year average dividend yield of 1%. Its dividend payouts have grown at a CAGR of 39.7% over the past three years.
IIJIY’s trailing-12-month EBIT margin of 10.62% is 28.3% higher than the industry average of 8.28%. Further, the stock’s trailing-12-month EBITDA margin and net income margin of 21.60% and 7.06% are 13.9% and 158% higher than the industry averages of 18.97% and 2.74%, respectively.
IIJIY’s total revenues for the fiscal 2024 third quarter that ended December 31, 2023, increased 8.5% year-over-year to ¥201.10 billion ($1.33 billion). Its gross profit rose 10.3% year-over-year to ¥45.95 billion ($302.94 million). Its operating profit came in at ¥20.28 billion ($133.70 million), up 7.9% from the previous year’s quarter.
Analysts expect IIJIY’s revenues to rise 19.4% year-over-year to $1.85 billion in the fiscal year that ended March 2024. Also, for the fiscal year 2025, the company’s revenue is expected to increase 9.9% from the prior year to $2.03 billion.
IIJIY’s stock has soared 1.4% over the past month and 22% over the past six months to close the last trading session at $38.70.
IIJIY’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has an A grade for Stability and a B in Quality. IIJIY is ranked #12 among 44 stocks in the A-rated Telecom - Foreign industry.
Click here to access additional IIJIY’s ratings (Momentum, Sentiment, Value, and Growth).
IDT Corporation (IDT)
IDT offers communications and payment services internationally. It operates through Fintech; National Retail Solutions; net2phone; and Traditional Communications segments. It operates a point of sale, a terminal-based platform, and offers BOSS Money for international money remittance, Leaf for digital wallet services, IDT Digital Payments, and more.
On February 22, 2024, IDT’s cloud-based prepaid-as-a-service business, Zendit, unveiled its eSim (embedded Subscriber Identity Module) initiative at the Mobile World Congress 2024 (MWC) in Barcelona, Spain.
eSIMs are an industry standard digital SIM that enables international tourists, business travelers, digital nomads, and anyone outside their home mobile network’s geography to access mobile networks without installing a physical SIM card. This new launch is expected to boost the company’s profitability and growth.
IDT’s trailing-12-month net income margin of 3.08% is 12.4% higher than the industry average of 2.74%. Likewise, the stock’s trailing-12-month ROCE and ROTC of 18.48% and 17.73% are significantly higher than the industry averages of 3.20% and 3.29%, respectively.
For the second quarter that ended January 31, 2024, IDT reported revenue of $296.10 million. The company’s gross profit and net income increased 7.7% and 2.9% from the prior year’s quarter to $97.40 million and $15.75 million, respectively. In addition, the company’s non-GAAP EPS grew 8.1% year-over-year to $0.67.
Shares of IDT have surged 43.6% over the past nine months to close the last trading session at $37.40.
IDT’s bright prospects are reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
IDT has a B grade for Stability. It is ranked #3 out of 16 stocks in the Telecom - Domestic industry.
In addition to the POWR Ratings we’ve stated above, we also have IDT ratings for Momentum, Sentiment, Value, Quality, and Growth. Get all IDT ratings here.
Spok Holdings, Inc. (SPOK)
SPOK provides healthcare communication solutions in the U.S., Europe, Canada, Australia, Asia, and the Middle East. Its products and services enhance workflows for clinicians and support administrative compliance. It also delivers clinical information to care teams to improve patient outcomes and offers GenA Pager, a one-way alphanumeric pager.
In March 2024, SPOK experts discussed the new Spok Care Connect® hosted solution, and the latest Spok® Messenger features in meeting place #MP162 throughout the conference, March 11-15, 2024, at the Orange County Convention Center in Orlando, Florida.
“Our rededicated focus on advancements to our healthcare communication platform, Spok Care Connect, helps thousands of healthcare organizations achieve this goal,” said Vincent D. Kelly, SPOK’s chief executive officer.
SPOK’s trailing-12-month gross profit margin of 70.37% is 42.3% higher than the 49.44% industry average. Its 15.68% trailing-12-month EBIT margin is 89.4% higher than the 8.28% industry average. Also, the stock’s 11.26% trailing-12-month levered FCF margin is 36.9% higher than the 8.22% industry average.
SPOK’s total revenue for the fourth quarter that ended December 31, 2023, increased 2.1% year-over-year to $33.95 million. Its net income and net income per share stood at $3.37 million and $0.17, respectively. In addition, the company’s adjusted EBITDA rose 15.3% from the year-ago value to $6.51 million.
For the quarter that ended March 31, 2024, SPOK’s EPS and revenue are expected to increase 46.7% and 5% year-over-year to $0.22 and $34.84 million, respectively. Moreover, the company topped the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past year, the stock has surged 38.6% to close the last trading session at $15.92.
SPOK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Quality. Within the Telecom - Domestic industry, SPOK is ranked first among 16 stocks.
Click here to access additional ratings of SPOK for Value, Stability, Growth, Momentum, and Sentiment.
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IIJIY shares were trading at $38.70 per share on Thursday morning, up $0.53 (+1.39%). Year-to-date, IIJIY has declined -2.52%, versus a 10.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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