The telecommunications sector is pivotal in establishing and maintaining the infrastructure that facilitates our interconnected world and sustains seamless communication. Therefore, investors could consider buying quality telecom stocks Spok Holdings, Inc. (SPOK), Verizon Communications Inc. (VZ) and Ooma, Inc. (OOMA) this month.
The telecommunications industry not only bridges the digital gap between urban and rural areas but also fosters greater transparency in governance through the implementation of e-governance initiatives.
In the current year, the communication services sector is projected to amass a substantial $332.40 billion in the US, with the mobile data segment taking the lead, poised to reach an impressive $137.3 billion.
In a global context, the United States is expected to generate the most significant revenue, with an estimated $332 billion in 2023. The US telecommunication market is anticipated to expand at a CAGR of 1.4% to reach $356.70 billion by 2028.
In addition, online communication is gaining prominence across various sectors like education, healthcare, and IT. The increasing need for high-speed connectivity to support data transfer and various public and personal tasks is fuelling demand in the telecommunications market.
The global telecom services market, valued at $1.81 trillion in 2022, is expected to grow at a CAGR of 6.2% from 2023 to 2030.
Furthermore, the growth in the sector is driven by heightened investments in 5G infrastructure, an expanding base of mobile subscribers, a surging need for high-speed data connectivity, and a decisive transition towards cutting-edge technologies. It stands as a testament to the relentless progress in the communication network sector, showcasing the ongoing technological advancements of recent decades.
Considering these conducive trends, let’s look at the fundamentals of the three best Telecom-Domestic stocks, starting with number 3.
Stock #3: Spok Holdings, Inc. (SPOK)
SPOK specializes in providing healthcare communication solutions globally. It offers messaging services, ancillary services, devices, and a platform, Spok Care Connect, all aimed at enhancing communication within the healthcare industry to improve patient outcomes.
It also provides professional services, software support, and sells third-party equipment. Its clients include healthcare organizations, businesses, and government agencies.
On October 25, 2023, the company declared a regular quarterly dividend of $0.3125 per share, payable on December 8, 2023.
The company pays an annual dividend of $1.25, which translates to a yield of 8.05% on the current market price, higher than the four-year average yield of 7.73%. It has raised its dividend payouts at a CAGR of 35.7% over the past three years.
For the third quarter that ended September 30, 2023, SPOK’s total software revenue grew 12% year-over-year to $16.46 million. Its Software operations bookings totaled $6.31 million, up 1.1% compared to the previous-year quarter. The company generated net income and adjusted EBITDA of $4.45 million and $8.42 million, up 52.4% and 24.8% year-over-year, respectively.
Vincent D. Kelly, CEO of SPOK, said, “Based on our performance in the third quarter, we are, once again, increasing our full-year 2023 guidance estimates for revenue and adjusted EBITDA generation. We believe we are on track to grow consolidated revenue for 2023, on a year-over-year basis, for the first time in the company’s history and even the low point of our revenue guidance reflects that. We are also increasing the midpoint of our adjusted EBITDA guidance by $1.75 million, demonstrating our ability to generate cash flow.”
SPOK’s revenue is expected to increase 1.4% year-over-year to $33.63 million for the first quarter ending March 2024. Its EPS is expected to grow 17.4% year-over-year to $0.27 for the second quarter ending June 2024. The company has surpassed the revenue and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of SPOK rose 87.5% over the past year and 94.4% year-to-date to close the last trading session at $15.92.
SPOK’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
SPOK has an A grade for Quality. Within the Telecom-Domestic industry, it is ranked #3 out of 18 stocks.
Click here for SPOK’s additional Growth, Value, Momentum, Stability and Sentiment ratings.
Stock #2: Verizon Communications Inc. (VZ)
VZ is a multinational communications, technology, and entertainment company. It operates in two main segments: Verizon Consumer Group, which provides wireless and wireline services to consumers; and Verizon Business Group, which provides a wide range of communication services and products to businesses and government entities around the world.
On November 1, 2023, VZ introduced Apple Business Essentials, a subscription service for small and midsize businesses using Apple products, providing device management, 24/7 support, and cloud storage.
It's available through VZ's Business Solution Store with pricing options from $2.99 to $24.99 per user per month, supporting distributed workforces and simplifying Apple device management for small businesses.
Recently, VZ declared quarterly cash dividends per common share of $0.67, up 1.9% year-over-year. The company pays an annual dividend of $2.66, which translates to a yield of 7.41% on the current market price. The company has consistently raised its dividend payouts for the past 19 years.
During the third quarter ended September 30, 2023, VZ generated net income and total operating revenues of $4.88 billion and $33.34 billion, respectively. Moreover, its consolidated adjusted EBITDA grew marginally year-over-year to $12.24 billion.
For the nine months ended September 2023, cash flows from operating activities and free cash flow increased 2.1% and 18.1% year-over-year to $28.80 billion and $14.63 billion, respectively.
VZ Chairman and CEO Hans Vestberg said, "We continued to make steady progress in the third quarter with a clear focus on growing wireless service revenue, delivering healthy consolidated adjusted EBITDA, and increasing free cash flow. Our financial discipline, combined with our healthy balance sheet, enabled us to increase our dividend for the 17th consecutive year, which is the longest current streak of dividend increases in the U.S. telecom industry."
In the current fiscal year, VZ forecasts cash flow from operations between $36.25 billion and $37.25 billion, and free cash flow exceeding $18 billion, a $1 billion increase from the previous guidance.
Additionally, for the same year, the company also expects total wireless service revenue to grow by 2.5% to 4.5%, with adjusted EBITDA ranging from $47.0 billion to $48.5 billion, adjusted EPS between $4.55 and $4.85, and an adjusted effective income tax rate of 22.5% to 24.0%.
Analysts expect VZ’s revenue to increase 1.7% year-over-year to $33.46 billion, ending in the first quarter of March 2024. The company has surpassed the EPS estimates in each of the trailing four quarters.
The stock has soared 12.6% over the past month to close the last trading session at $36.02.
VZ’s POWR Ratings reflect this robust outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
VZ has a B grade for Stability and Quality. Within the same industry, it is ranked #2.
In addition to the POWR Ratings stated above, one can see VZ’s additional POWR Ratings for Growth and Sentiment here.
Stock #1: Ooma, Inc. (OOMA)
OOMA is a publicly traded telecommunications company. The company offers a variety of communication services, such as Voice over IP (VoIP) calling, to both business and residential customers, as well as mobile users.
On October 20, 2023, OOMA acquired 2600Hz, Inc. for approximately $33 million in cash. It expects to gain approximately $7 million in annual recurring revenue as a result of this acquisition. The company plans to integrate 2600Hz's technology and expand services while expanding its customer base to include service providers and resellers.
On October 17, OOMA announced expansion into the Asia Pacific region to support IWG plc, the world's leading provider of hybrid work solutions, including Regus and Spaces. They've introduced phone and unified communications services in Australia, New Zealand, and Hong Kong, aiming to offer cloud UCaaS services globally in 2023.
OOMA serves IWG customers in 25 countries, providing custom phone plans and centralized call answering solutions, enhancing customer experiences, and streamlining onboarding and support through their flexible platform and APIs.
For the second quarter ended July 31, 2023, OOMA generated total revenue of $58.35 million, up 10.8% year-over-year. The company generated a gross profit of $36.59 million, up 8.2% year-over-year. Moreover, its adjusted EBITDA grew 22.1% compared to the previous-year quarter to $4.86 million.
For the third quarter of fiscal 2024, OOMA expects total revenue in the range of $59 million to $59.60 million. On a non-GAAP basis, it expects to achieve net income within the range of $3.80 million to $4.10 million and non-GAAP net income per share in the range of $0.14 to $0.16.
Street expects revenue and EPS to increase 4.9% and 6% year-over-year to $59.45 million and $0.15 for the third quarter ended October 2023. The company has surpassed the revenue estimate in each of the trailing four quarters.
The stock rose 3.3% marginally intraday to close the last trading session at $10.85.
OOMA’s POWR Ratings reflect this sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
OOMA has an A grade for Growth and Value and a B for Stability. Within the same industry, it is ranked first.
To see OOMA’s additional POWR Ratings for Momentum, Sentiment, and Quality, click here.
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VZ shares were trading at $35.70 per share on Monday afternoon, down $0.32 (-0.89%). Year-to-date, VZ has declined -2.74%, versus a 15.05% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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