Despite macro headwinds, the telecom industry is expected to expand amid robust demand and rapid digitalization. There are numerous standout technologies and trends in the sector that are expected to be increasingly used to improve user experience, network and company resilience, and value propositions.
Also, the growing demand for high-bandwidth connectivity with low latency for many mission-critical applications is expected to drive the expansion of the 5G infrastructure business.
Furthermore, the Bipartisan Infrastructure Law allocates a historic $65 billion investment to expand affordable and reliable high-speed Internet access in communities across the United States. Lucrative government initiatives to address digital equity should benefit the telecom industry.
The global telecom services market is predicted to grow at a CAGR of 6.2% until 2030. Investors' interest in telecom stocks is evident from the SPDR S&P Telecom ETF's (XTL) 9.1% gains over the past month and 2.9% gains over the past three months.
Given the backdrop, fundamentally sound telecom stocks Verizon Communications Inc. (VZ), IDT Corporation (IDT), Ooma, Inc. (OOMA), and Spok Holdings, Inc. (SPOK) might be ideal buy-and-hold options for the long haul.
Verizon Communications Inc. (VZ)
VZ and its subsidiaries offer communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. Its segments are Consumer and Business.
On January 12, 2023, VZ announced the launch of Verizon Mobile for Microsoft Teams. This new service integrates mobile devices with Microsoft Teams for easier calling and collaboration as part of its strategic relationship with Microsoft Corporation (MSFT). This collaboration with the tech giant is expected to be strategically beneficial for VZ.
In terms of forward EV/EBITDA, VZ is currently trading at 7.33x, 19.1% lower than the industry average of 9.07x. Its forward Price/Book of 1.71x is 20.1% lower than the industry average of 2.14x.
VZ's trailing-12-month gross profit margin of 56.79% is 12.9% higher than the 50.32% industry average. Its trailing-12-month net income margin of 15.53% is 294.6% higher than the 3.94% industry average.
VZ's operating revenues came in at $35.25 billion for the fourth quarter ended December 31, 2022, up 3.5% year-over-year. Moreover, its wireless equipment revenues increased 4.1% year-over-year to $7.63 billion. Also, its net income increased 41.4% year-over-year to $6.70 billion.
VZ's revenue is expected to increase marginally year-over-year to $137.76 billion in 2023. Its EPS is expected to increase marginally per annum for the next five years. Over the past three months, the stock has gained 10.9% to close the last trading session at $41.83.
VZ's strong fundamentals are reflected in its POWR Ratings. The stock's overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
VZ has a B grade for Stability and Quality. In the Telecom - Domestic industry, it is ranked #4 out of 19 stocks. Click here for the additional POWR Ratings for Growth, Momentum, Sentiment, and Value for VZ.
IDT Corporation (IDT)
IDT provides communications and payment services in the United States and internationally. The company operates through three segments: Fintech; net2phone; and Traditional Communications.
On December 5, 2022, Shmuel Jonas, CEO, said, "In the first quarter, we achieved our second consecutive quarter of record Adjusted EBITDA. We are focused on improving the bottom-line performance of all our businesses."
In terms of trailing-12-month EV/EBITDA, IDT is currently trading at 8.7x, 19.7% lower than the industry average of 10.83x. Its trailing-12-month Price/Sales of 0.59x is 58.8% lower than the industry average of 1.43x.
IDT's trailing-12-month ROCE of 23.99% is 351.6% higher than the 5.31% industry average. Its trailing-12-month ROTA of 8.26% is 295.5% higher than the 2.09% industry average.
IDT's income from operations came in at $20.2 million for the first quarter that ended October 31, 2022, up 46.9% year-over-year. Moreover, its net profit came in at $11 million, compared to a net loss of $2.48 million in the year-ago period. Moreover, its EPS came in at $0.43, compared to a loss per share of $0.10 in the prior year period.
The stock has gained 25.3% over the past three months to close the last trading session at $31.04.
IDT's overall B rating equates to a Buy in our POWR Ratings system. It has an A grade for Growth and a B for Value. It is ranked #3 in the same industry. Get the additional POWR Ratings for Stability, Sentiment, Momentum, and Quality for IDT here.
Ooma, Inc. (OOMA)
OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada. The company's products and services include Ooma Office, Ooma Office Pro, Ooma Connect, Ooma Enterprise, Ooma AirDial, Ooma Premier, and Ooma Telo Air.
In terms of forward EV/Sales, OOMA is currently trading at 1.66x, 21.2% lower than the industry average of 2.10x.
OOMA's trailing-12-month gross profit margin of 63.05% is 25.3% higher than the 50.32% industry average. Its trailing-12-month asset turnover ratio of 1.81% is 271.9% higher than the 0.49% industry average.
OOMA's total revenue increased 15.3% year-over-year to $56.78 million for the third quarter that ended October 30, 2022. Its subscription and services revenues came in at $51.75 million, up 15.9% year-over-year. Moreover, its gross profit came in at $35.92 million, representing an 18.8% year-over-year rise.
The consensus revenue estimate of $216.09 million for the fiscal year 2023 indicates a 12.4% increase year-over-year. Its EPS is expected to grow 3.9% year-over-year to $0.53 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past six months, the stock has gained 32% to close the last trading session at $15.22.
OOMA's POWR Ratings reflect this promising outlook. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system. It has an A grade for Growth and a B for Value, Stability, and Sentiment. It is ranked first in the same industry.
Beyond what is stated above, we've also rated OOMA for Momentum and Quality. Get all OOMA ratings here.
Spok Holdings, Inc. (SPOK)
SPOK provides healthcare communication solutions worldwide. It delivers clinical information to care teams to enhance patient outcomes. The company offers subscriptions to one-way or two-way messaging and ancillary services and sells devices to resellers.
In terms of forward EV/Sales, SPOK is currently trading at 1.08x, 48.5% lower than the industry average of 2.10x. Its trailing-12-month Price/Sales of 1.23x is 12.4% lower than the industry average of 1.40x.
SPOK's trailing-12-month gross profit margin of 66.14% is 31.5% higher than the 50.32% industry average. Its trailing-12-month asset turnover ratio of 0.55% is 12.7% higher than the 0.49% industry average.
SPOK's operating income came in at $3.54 million for the third quarter that ended September 30, 2022, compared to a loss of $3.56 million in the year-ago period. Its net profit came in at $2.92 million compared to a net loss of $2.49 million for the same period. Also, its EPS came in at $0.15 compared to a loss per share of $0.13 for the previous year.
SPOK's EPS is estimated to grow 64.7% year-over-year to $0.84 in 2023. Over the past six months, the stock has gained 23.4% to close the last trading session at $8.34.
It's no surprise that SPOK has an overall A rating which equates to a Strong Buy in our POWR Ratings system.
It has an A grade for Growth and Sentiment and a B for Quality. The stock is ranked #2 in the same industry. We've also rated SPOK for Stability, Momentum, and Value. Get all the SPOK ratings here.
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VZ shares were trading at $41.43 per share on Friday morning, down $0.40 (-0.96%). Year-to-date, VZ has gained 6.80%, versus a 8.80% rise in the benchmark S&P 500 index during the same period.
About the Author: RashmiKumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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