With the growing reliance on digital communication, a rapid surge in 5G investments, and expanding data demands globally, the telecom industry is well-positioned for significant profitability and expansion in the long term.
Considering the industry’s rosy prospects, quality telecom stocks KT Corporation (KT), InterDigital, Inc. (IDCC), and Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY) could be ideal buys now for substantial returns.
Growing spending on the deployment of 5G infrastructures due to the significant customer inclination toward next-generation technologies and smartphone devices is the primary driving force behind the telecom industry’s exceptional growth and expansion.
In recent years, the number of mobile subscribers has soared strongly, and so has the demand for high-speed data connectivity and value-added managed services, propelling the industry’s profitability. Moreover, the COVID-19 pandemic has had a positive impact on the telecom industry.
A large portion of the global population was forced to spend most of their time at home, which led to an increase in remote jobs, online education, telemedicine, and streaming in-home entertainment. This resulted in an unexpectedly high demand for mobile and residential broadband access and capacity.
The global telecom services market size is expected to reach $2.87 trillion by 2030, expanding at a CAGR of 6.2% during the forecast period (2023-2030). Meanwhile, the U.S. telecom services market is projected to grow at a CAGR of 6.5% from 2023 to 2030.
In the telecom industry, a company’s success is mainly dependent upon its service delivery quality and adaption to newer digital technologies. Technological trends, including 5G technology, cloud computing, and the adoption of AI in customer services, will shape the telecom industry in the future.
The 5G services market is expected to total around $1 trillion by 2028, growing at a CAGR of 52.4% from 2023 to 2028.
Given the industry’s tailwinds, investing in quality telecom stocks KT, IDCC, and MYTAY could be wise for solid returns.
Let’s discuss the fundamentals of these stocks in detail:
KT Corporation (KT)
Headquartered in Seongnam, South Korea, KT offers integrated telecommunications and platform services internationally. The company provides fixed-line telephone services; broadband Internet access service and other Internet-related services; data communication services; and media and content services.
KT’s trailing-12-month net income margin of 4.55% is 41.7% higher than the industry average of 3.21%. Its 0.62x trailing-12-month asset turnover ratio is 20.5% higher than the 0.52x industry average.
In terms of forward EV/EBITDA, KT is trading at 3.19x, 63.4% lower than the industry average of 8.72x. Likewise, the stock’s forward Price/Sales multiple of 0.49 is 58.6% lower than the industry average of 1.18. Also, its forward EV/Sales of 0.97x is 45.6% lower than the industry average of 1.79x.
For the third quarter that ended September 29, 2023, KT’s operating revenue increased 3.4% year-to-year to KRW 6.70 trillion ($5.13 billion). Service revenue grew 3.7% from the prior year’s quarter to KRW 5.96 trillion ($4.57 billion). The company reported a net income of KRW 288.30 billion ($220.90 million) for the quarter.
Furthermore, as of September 30, 2023, the company’s cash and cash equivalents came in at KRW 3.11 trillion ($2.38 billion), compared to KRW 1.81 trillion ($1.39 billion) as of June 30, 2023.
Analysts expect KT’s revenue for the first quarter (ending March 2024) to increase 3.9% year-over-year to $3.59 billion. The company’s revenue and EPS are further expected to grow 1.3% and 3.4% year-over-year to $14.17 billion and $2.63 for the fiscal year ending December 2024.
The stock has gained 6.8% over the past month and 14.8% over the past six months to close the last trading session at $13.77.
KT’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong 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 Value and a B for Stability and Growth. Within the A-rated Telecom - Foreign industry, it is ranked #3 among 44 stocks.
Click here to access additional ratings of KT for Momentum, Quality, and Sentiment.
InterDigital, Inc. (IDCC)
IDCC is a global research and development company with a primary focus on wireless, visual, and related technologies. It designs and develops technologies that enable connection in a range of communications and entertainment products and services. It engaged in designing and developing innovations in digital cellular and wireless products and networks.
On December 6, IDCC announced that its Board of Directors had authorized an increase to the outstanding amount of the company’s existing share repurchase program from about $235 million to an aggregate of $300 million, effective as of December 1, 2023.
The share buyback program devised by the company furthers the strategic objective to reward its shareholders with risk-adjusted returns.
On November 30, IDCC announced a quarterly dividend distribution of $0.40 per share on its common stock. This dividend is payable on January 24, 2024, to shareholders of record at the close of business on January 10, 2024. The regular dividend payment reflects the company’s solid financial position and ability to return value to its shareholders.
The company’s annual dividend of $1.60 translates to a 1.46% yield on the current share prices, while its four-year average dividend yield is 2.21%.
In terms of forward EV/EBIT, IDCC is trading at 10.71x, 48.2% lower than the industry average of 20.68x. The stock’s forward Price/Cash Flow multiple of 11.62 is 48.8% lower than the industry average of 22.69. Also, its forward EV/EBITDA of 7.02x is 55.3% lower than the industry average of 15.71x.
During the third quarter that ended September 30, 2023, IDCC’s total revenues grew 22.1% year-over-year to $140.11 million. Its income from operations increased 68.5% from the year-ago value to $53.65 million. The company’s adjusted EBITDA amounted to $83.51 million, up 48.1% from the prior year’s quarter.
In addition, the company’s net income came in at $47.94 million, or $1.72 per share, compared to $22.22 million, or $0.74 per share in the same period of 2022, respectively.
The company updated its expectations for the fourth quarter of 2023. The company expects revenue between $102 million and $106 million. IDCC’s net income is expected to range from $18 million to $21 million, while its adjusted EBITDA guidance upgraded to $49 million to $52 million.
Street expects IDCC’s revenue to increase by 19.8% year-over-year to $548.29 million for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to grow 136.5% year-over-year to $8.92. Moreover, IDCC topped the consensus EPS estimates in all four trailing quarters.
Shares of IDCC have surged 96% year-to-date and 129.7% over the past year to close the last trading session at $110.20.
IDCC’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.
IDCC has a B grade for Value and Quality. It has topped among the 41 stocks in the Telecom - Domestic industry.
In addition to the POWR Ratings we’ve stated above, we also have IDCC ratings for Growth, Momentum, Stability, and Sentiment. Get all IDCC ratings here.
Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY)
Based in Budapest, Hungary, MYTAY is a fixed-line and mobile telecommunication provider for residential and small business customers internationally. It operates in the MT-Hungary and North Macedonia segments. The company provides TV distribution, mobile telecommunication services, internet and voice, Office 365, server, and mobile tariff plans.
On September 15, MYTAY and the Government of Hungary signed a Memorandum of Understanding (MoU) in which MYTAY confirms its intention to promote the development of long-term sustainable fixed and mobile infrastructure and the rollout of services, participating in the EU’s Digital Decade program, the achievement of the 2030 objectives, in line with the National Digitalization Strategy.
The signed MoU reaffirms the long-term cooperation between the organizations for digital transformation across Hungary.
In terms of forward EV/Sales, MYTAY is trading at 1.38x, 22.8% lower than the industry average of 1.79x. The stock’s forward EV/EBITDA multiple of 4.12 is 52.7% lower than the industry average of 8.72. Moreover, its forward Price/Sales of 0.74x is 37.1% lower than the industry average of 1.18x.
For the third quarter that ended September 30, 2023, MYTAY’s total revenue rose 13.3% year-over-year to HUF 216.23 billion ($616.13 million). Its gross profit came in at HUF 131.25 billion ($374 million), up 19% from the previous year’s quarter. Also, adjusted profit attributable to owners of the parent grew 49.4% year-over-year to HUF 30.04 billion ($85.60 million).
In addition, the company’s EBITDA was HUF 80.45 billion ($229.25 million), indicating an increase of 23.4% from the year-ago value. Its free cash flow rose 24.6% year-over-year to HUF 73.12 billion ($208.36 million).
Analysts expect MYTAY’s revenue to grow 13.3% year-over-year to $2.35 billion for the fiscal year (ending December 2023). Similarly, the company’s revenue for the fiscal year 2024 is expected to grow 6.8% year-over-year to $2.51 billion. Moreover, it surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past six months, MYTAY’s stock has gained 65.1% and 117.6% year-to-date to close the last trading session at $9.33.
MYTAY’s POWR Ratings reflect its bright prospects. The stock has an overall grade of A, translating to a Strong Buy in our proprietary rating system.
MYTAY has an A grade for Value, Sentiment, and Stability and a B for Quality and Growth. It is ranked first among 44 stocks within the A-rated Telecom - Foreign industry.
To access all the ratings of MYTAY, click here.
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KT shares were unchanged in premarket trading Wednesday. Year-to-date, KT has gained 2.00%, versus a 25.87% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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