The global telecom industry thrives on 5G investments and increased data demand amid widespread digitization. Therefore, investors could consider investing in potential telecom stocks Verizon Communications Inc. (VZ), KT Corporation (KT), and Turkcell Iletisim Hizmetleri A.S. (TKC) for year-end gain.
The U.S. telecom market is steadily growing, driven by increased demand for mobile data, fixed broadband services, and pay-TV, with initiatives like the Rural Digital Opportunity Fund and spectrum developments contributing to its expansion. Moreover, the global telecom services market size is expected to expand at a CAGR of 6.2% from 2023 to 2030.
Besides, the growing demand for high-speed data connectivity for streaming media and unified Internet of Things (IoT) applications, such as smart home energy management, is estimated to propel the adoption of these services. The global 5G service market is expected to grow at a whooping CAGR of 59.4% until 2030.
Furthermore, rapid digital transformation across industries, heightened data consumption, and increased internet and mobile device penetration fuel the telecom cloud industry. The global telecom cloud market size is expected to expand at a CAGR of 19.9% from 2022 to 2030.
Considering these conducive trends, let’s examine the fundamentals of the three telecom stock picks.
Verizon Communications Inc. (VZ)
VZ delivers communication, technology, and entertainment services globally through its Consumer and Business segments, offering wireless; wireline; and broadband services, along with a range of IoT solutions.
On December 14, VZ boosted 4G and 5G coverage in Newington, Virginia, improving connectivity around key locations like Lauren Hill Community Center and South County High School.
The expansion is part of VZ's extensive network transformation, benefitting residents with enhanced mobile and home internet services. Public safety agencies and businesses in the area also gain from these network improvements.
On December 13, VZ reported its Frontline is going to provide the Douglas County Sheriff’s Office with 400 5G smartphones for mission-critical connectivity, supporting law enforcement operations and ensuring secure access to essential applications.
The partnership includes mobile broadband priority service and leverages the capabilities of the Verizon Frontline Crisis Response Team in challenging coverage areas.
VZ’s trailing-12-month gross profit margin of 58.69% is 19.5% higher than the industry average of 49.13%. Its 22.87% trailing-12-month EBIT margin is 190.7% higher than the 7.87% industry average.
In the third quarter ending September 30, 2023, VZ reported total operating revenues of $33.34 billion. The company's total operating expenses declined 1.8% year-over-year to $25.86 billion. Its net income and net income attributable to VZ stood at $4.88 billion and $1.13, respectively.
As of September 30, 2023, its total assets amounted to $384.83 billion, compared to the total assets of $379.68 billion as of December 31, 2022.
For the fiscal year 2023, VZ foresees cash flow from operations from $36.25 billion to $37.25 billion. The company also anticipates total wireless service revenue growth between 2.5% and 4.5%, with adjusted EBITDA expected to be in the range of $47 billion to $48.50 billion. The adjusted EPS is projected to range from $4.55 to $4.85.
VZ’s revenue is expected to grow 2.1% year-over-year to $33.28 billion for the second quarter ending June 2024. Its EPS is expected to be $1.15 for the same quarter. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
VZ’s shares increased 10.6% over the past three months and 3.8% over the past month to close the last trading session at $37.37.
VZ’s POWR Ratings reflect its positive prospects. 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.
VZ has a B grade for Stability and Quality. Within the Telecom - Domestic industry, it is ranked #4 of 16 stocks.
In addition to the POWR Ratings stated above, one can access VZ’s additional Growth, Value, Momentum, and Sentiment ratings here.
KT Corporation (KT)
Based in Seongnam, South Korea, KT is a telecommunications provider offering fixed-line, broadband, data communication, media, and financial services. The company is also involved in various business activities, including information technology, network services, satellite services, and real estate development.
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.
During the third quarter, which ended September 29, 2023, KT's operating revenue grew 3.4% from the previous-year quarter to KRW6.70 trillion ($5.11 billion). The company's net reported net income and EBITDA of KRW288.30 billion ($219.87 million) and KRW1.26 trillion ($960.85 million).
Its assets amounted to KRW43.97 trillion ($33.54 billion), compared to the prior-year quarter assets of KRW40.65 trillion ($31 billion).
Analysts expect KT’s revenue and EPS to rise 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 22.9% over the past nine months and 15% over the past six months to close the last trading session at $14.01.
KT’s robust 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.
It has an A grade for Value and a B for Growth and Stability. Within the A-rated Telecom - Foreign industry, it is ranked third among 44 stocks.
To see KT’s additional POWR Ratings for Momentum, Sentiment, and Quality, click here.
Turkcell Iletisim Hizmetleri A.S. (TKC)
Headquartered in Istanbul, Turkey, TKC is a leading telecommunications company providing digital services in multiple countries, including Turkey and Ukraine. They offer mobile communications, fixed business internet, cybersecurity, and digital entertainment platforms.
TKC’s trailing-12-month EBIT margin of 26.09% is 231.7% higher than the industry average of 7.87%. Its 28.37% trailing-12-month EBITDA margin is 50.2% higher than the 18.88% industry average.
In the third quarter ended September 30, 2023, TKC reported total revenue and gross profit of TRY25.99 billion ($859.21 million) and TRY10.36 billion ($356.81 million), up 77.3% and 115.4% year-over-year, respectively. The company's EPS and EBITDA grew 128.2% and 88.9% from the previous-year quarter to TRY2.51 and TRY11.31 billion ($389.65 million), respectively.
Street expects TKC’s revenue and EPS to grow 52.2% and 105.6% year-over-year to $4.91 billion and $1.25 for the fiscal year ending December 2024. The company surpassed the EPS estimates in each of the trailing four quarters.
TKC’s shares have gained 10.7% over the past nine months and 22.9% over the past six months to close the last trading session at $4.78.
TKC’s POWR Ratings reflect a sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, Stability, Sentiment, and Quality. Within the A-rated Telecom - Foreign industry, it is ranked second.
Click here for TKC’s additional Momentum ratings.
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VZ shares were trading at $37.72 per share on Monday afternoon, up $0.35 (+0.94%). Year-to-date, VZ has gained 2.76%, versus a 24.89% 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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