Escalating demands for seamless connectivity, swift data transfer, and substantial government financial support are bolstering the communication and networking sector's vigorous ascent.
Hence, it could be wise to assess tech stocks BlackBerry Limited (BB), Motorola Solutions, Inc. (MSI), and AudioCodes Ltd. (AUDC) and warrant a comprehensive analysis to gauge their potential as value-oriented investments. Let’s understand this in detail.
Since the onset of the pandemic, individuals globally have actively adapted their work approaches and lifestyles to seamlessly integrate into virtual realms. As remote work and virtual interactions proliferate, the imperative for resilient communication and networking infrastructure has surged.
The increasing demand for swift, uninterrupted data transfer is fueling the requirement for cutting-edge communication and networking technologies. Moreover, the market is gaining momentum from the expansion of technologies like the Internet of Things and 5G networks, catalyzing innovation and enabling extensive connectivity.
Recently, the Biden Administration launched the Public Wireless Supply Chain Innovation Fund, injecting $1.50 billion into the development of open and interoperable networks. This funding endeavors to lead the implementation of open and interoperable 5G radio access networks, thereby propelling technological progress within the United States.
Furthermore, Gartner anticipates global expenditure on communication services for the current year to reach $1.46 trillion, marking a 2.7% increase compared to the preceding year, while spending in the next year is expected to come in at $1.52 trillion, up 3.8% year-over-year.
That said, Technavio forecasts the global industrial communication market to grow at a 10.9% CAGR between 2022 and 2027. Additionally, Contrive Datum Insights projects the global networking service market to rise at a CAGR of 32.9%, reaching $64.91 billion by 2030.
Considering these conducive trends, let's take a look at the fundamentals of the three best Technology - Communication/Networking stocks, starting with number 3.
Stock #3: BlackBerry Limited (BB)
Headquartered in Waterloo, Canada, BB offers intelligent security software and services to global enterprises and governments. The company operates through three segments, Cybersecurity; IoT; and Licensing and Other.
On August 9, BB announced a substantial upgrade to its Cylance® AI engine, advancing cyberattack prediction for proactive defense. This innovation, boasting a 40% improvement in threat prediction, positions BB as a global cybersecurity leader, fostering financial growth through ongoing innovation and market dominance.
BB’s forward EV/Sales of 3.62x is 29.8% higher than the industry average of 2.79x but 18.4% lower than the 4.43x five-year industry average. Also, the stock’s forward EV/EBITDA of 75.12x is 403.5% higher than the 14.92x industry average. However, its forward Price/Sales ratio of 3.70x is 29.4% lower than the five-year average of 5.24x.
For the fiscal 2024 first quarter that ended May 31, 2023, BB’s revenue increased 122% year-over-year to $373 million. Its adjusted gross margin grew 71.4% from the year-ago value to $180 million.
In addition, the company’s adjusted net income and adjusted EPS came in at $35 million and $0.06, compared to an adjusted loss and adjusted loss per share of $31 million and $0.05 in the prior year’s period.
The consensus revenue estimate of $879.51 million for the fiscal year ending February 2024 reflects a 34.1% year-over-year rise. Moreover, the company’s EPS is expected to come in at $0.02 for the ongoing year. In addition, the company surpassed the consensus revenue estimates in all four trailing quarters.
BB’s shares have gained 67.4% year-to-date to close the last trading session at $5.54.
BB’s fundamentals are apparent in its POWR Ratings. BB has a B grade for Growth and a C for Value, Momentum, and Sentiment. It has ranked #34 out of 52 stocks in the Technology - Communication/Networking industry. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
In addition to the POWR Ratings I’ve just highlighted, you can see BB’s ratings for Stability and Quality here.
Stock #2: Motorola Solutions, Inc. (MSI)
MSI offers public safety and enterprise security solutions, including land mobile radio communications (LMR), video security, access control, and command center software backed by managed services. Its segments include Products and Systems Integration and Software and Services.
MSI announced an upward revision in its fiscal 2023 outlook in the fiscal second quarter report. Revenue expectations now stand at $9.875 billion to $9.900 billion, compared to the previous projection of $9.725 billion to $9.775 billion.
Additionally, non-GAAP EPS is anticipated to be between $11.40 and $11.48 per share, a rise from the previous estimate of $11.21 to $11.29 per share. These positive adjustments indicate MSI's strengthened financial performance and potential for increased profitability.
In terms of forward non-GAAP P/E, MSI is trading at 24.49x, 3.6% higher than the industry average of 23.65x. Its forward EV/Sales of 5.33x is 90% higher than the 2.81x industry average. Moreover, the stock’s forward EV/EBITDA of 17.69x is 19.8% higher than the 14.76x industry average.
During the second quarter, MSI’s sales increased 12.3% year-over-year to $2.40 billion. Its gross margin grew 20.1% from the year-ago value to $1.19 billion. Also, the company’s non-GAAP operating earnings and non-GAAP EPS rose 29% and 28% year-over-year to $641 million and $2.65, respectively.
For the fiscal year ending December 2023, analysts expect the company’s revenue to increase 8.7% year-over-year to $9.90 billion. The company’s EPS for the ongoing year is expected to come in at $11.48, up 10.8% year-over-year. Also, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters.
The stock has gained 15.3% over the past year, closing the last trading session at $280.92.
MSI’s prospects are reflected in its POWR Ratings. MSI has a B grade for Growth, Quality, and Sentiment. However, it has a D grade for Value. It is ranked #11 in the 52-stock Technology - Communication/Networking industry.
Click here to access the additional MSI ratings (Momentum and Stability).
Stock #1: AudioCodes Ltd. (AUDC)
Lod, Israel-based AUDC, offers communication software, end-to-end products, and productivity solutions. It enables enterprises and service providers to establish all-IP voice networks, delivering unified communications, contact centers, and hosted business services in cloud-based and on-premises environments.
In terms of forward non-GAAP P/E, AUDC is trading at 15.58x, 34.1% lower than the industry average of 23.65x. Its forward EV/Sales of 0.89x is 68.3% lower than the industry average of 2.81x. Moreover, the stock’s forward EV/EBITDA of 7.93x is 46.3% lower than the 14.76x industry average.
For the second quarter that ended June 30, 2023, AUDC’s services revenues increased 2.4% year-over-year to $28.45 million. Its cash inflow from investing activities rose significantly from the year-ago value to $7.35 million.
As of June 30, 2023, the company’s cash and cash equivalents came in at $36.23 million, compared to $24.54 million as of December 31, 2022.
The company’s revenue for the fiscal year ending December 2024 is expected to increase 7.1% year-over-year to $262.86 million. Similarly, analysts expect AUDC’s EPS for the next year to come in at $1.08, up 66% from the previous year. The stock gained 2.8% intraday, closing the last trading session at $10.41.
AUDC’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
AUDC has a B grade for Value, Quality, and Sentiment. It is ranked #7 out of 52 stocks within the same industry.
Click here to access additional AUDC ratings for Growth, Momentum, and Stability.
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MSI shares were trading at $282.79 per share on Thursday afternoon, up $1.87 (+0.67%). Year-to-date, MSI has gained 10.45%, versus a 17.19% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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