The telecom sector’s prospects look promising due to expanding 5G networks, higher spending on 5G infrastructure, the growth of the digital economy, and the growing usage of smartphones. Telecom companies focus heavily on security, cloud technology, AI, and better collaboration tools to meet diverse connectivity needs, contributing to their positive outlook.
Considering these factors, it could be wise to buy fundamentally strong telecom stocks Orange S.A. (ORAN), América Móvil, S.A.B. de C.V. (AMX), and KT Corporation (KT).
The telecom industry is vital as it provides on-demand connectivity services, supporting seamless communication and digital transformation. Advancements in security, cloud technology, AI, and the rise of remote work and virtual collaboration contribute to the sector’s growth. The global telecommunication market is projected to grow at a CAGR of 6.2%, reaching $3.10 trillion by 2030.
Advancements in 5G technology have enhanced network speed, capacity, and reliability, meeting the growing needs of businesses and individuals and thereby boosting the sector's growth. Companies are also exploring "5.5G," a faster version of 5G, a new generation of mobile internet.
Furthermore, AI is revolutionizing the telecom sector by streamlining network management, automating customer service, improving predictive maintenance, and boosting cost savings and cybersecurity. The use of AI in the global telecommunication market is expected to reach $21.20 billion by 2030, growing at a 40.4% CAGR.
Considering these conducive trends, let’s analyze the fundamentals of the three stocks from the Telecom – Foreign industry, beginning with the third choice.
Stock #3: Orange S.A. (ORAN)
Headquartered in Issy-les-Moulineaux, France, ORAN provides various fixed telephony and mobile telecommunications, data transmission, and other value-added services to customers, businesses, and other telecommunications operators internationally.
On March 26, 2024, ORAN and MASMOVIL completed a transaction to create a joint venture, forming Spain's leading operator in terms of customers. The 50:50 partnership will bring significant benefits to consumers and businesses in Spain, with anticipated synergies of over €490 million ($531.64 million) per year starting four years after closing.
Christel Heydemann, CEO at ORAN, comments that the joint venture is a significant step in ORAN's long-term European strategy, boosting innovation, investment, and sustainability for a more robust European telecom industry.
On March 19, 2024, ORAN announced at the Orange Business Summit the launch of two new trusted generative AI (GenAI) offers, covering infrastructure and applications, making it the first to support the complete lifecycle of trusted GenAI projects.
These solutions, developed in partnership with LightOn and HPE, aim to facilitate businesses' digital transformation and provide tailored AI services for various use cases while ensuring data security and cost efficiency.
In terms of the trailing-12-month Return on Common Equity, ORAN’s 7.12% is 140.2% higher than the 2.96% industry average. Its 2.22% trailing-12-month Return on Total Assets is 84% higher than the 1.20% industry average. Likewise, the stock’s 4.43% trailing-12-month Return on Total Capital is 34.4% higher than the 3.30% industry average.
ORAN’s revenue for the fiscal year that ended on December 31, 2023, increased 1.5% year-over-year to €44.12 billion ($47.66 billion). Its operating income stood at €4.97 billion ($5.37 billion), up 3.5% from the year-ago value.
Additionally, its net income attributable to owners of the parent company and EPS attributable to the parent company grew 13.7% and 16.4% over the prior-year quarter to €1.60 billion ($1.73 billion) and €0.85, respectively.
Analysts expect ORAN’s fiscal 2025 revenue to increase 0.7% year-over-year to $47.03 billion. Its EPS for fiscal 2024 is expected to grow 16.1% year-over-year to $1.37. Over the past nine months, ORAN’s stock has declined 1.8% to close the last trading session at $11.17.
ORAN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Stability and a B for Value. Within the A-rated Telecom - Foreign industry, it is ranked #16 out of 44 stocks. To see ORAN’s Growth, Momentum, Sentiment, and Quality ratings, click here.
Stock #2: América Móvil, S.A.B. de C.V. (AMX)
Based in Mexico City, Mexico, AMX provides telecommunications services internationally. The company offers wireless and fixed voice services, including airtime, local, domestic, and international long-distance services, as well as network interconnection services.
In terms of the trailing-12-month net income margin, AMX’s 9.33% is 264.7% higher than the 2.56% industry average. Its 16.07% trailing-12-month Capex / Sales is 325.8% higher than the 3.77% industry average. Likewise, the stock’s 4.87% trailing-12-month Return on Total Assets is 303.9% higher than the 1.20% industry average.
For the fiscal fourth quarter that ended December 31, 2023, AMX’s total revenues came in at MXN200.71 billion ($12.23 billion). Its net income amounted to $18.06 billion ($1.10 billion). Its adjusted EBITDA came in at MXN76.66 billion ($4.67 million). In addition, Its EBIT stood at MXN41.81 billion ($2.54 billion).
For the quarter ended March 31, 2024, AMX’s revenue is expected to increase 5% year-over-year to $12.12 billion. Its EPS for the quarter ending September 30, 2024, is expected to increase considerably year-over-year to $0.40. Over the past six months, the stock has gained 9.1% to close the last trading session at $18.50.
AMX’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Quality. It is ranked #13 in the same industry. Click here to see AMX’s Growth, Momentum, and Sentiment ratings.
Stock #1: KT Corporation (KT)
Headquartered in Seongnam, South Korea, KT provides integrated telecommunications and platform services internationally. The company offers fixed-line telephone services, broadband Internet access services, other Internet-related services, and data communication services.
In terms of the trailing-12-month Capex / Sales, KT’s 14% is 271% higher than the 3.77% industry average. Its 0.63x trailing-12-month asset turnover ratio is 31% higher than the 0.48x industry average. Likewise, the stock’s 6.05% trailing-12-month Return on Common Equity is 104% higher than the 2.96% industry average.
KT’s operating revenues for the fourth quarter that ended December 31, 2023, increased 1.8% year-over-year to KRW6.70 trillion ($4.94 billion). Its service revenue stood at KRW5.72 trillion ($4.21 billion), up 1.2% from the year-ago value.
For the same quarter, its operating income increased 75.4% year-over-year to KRW265.60 billion ($195.67 million). Also, its EBITDA came in at KRW1.28 trillion ($940 million), representing an increase of 18.4% from the prior-year quarter.
Street expects KT’s fiscal 2024 EPS to increase 26.1% year-over-year to $1.90. Its fiscal 2025 revenue is expected to increase marginally year-over-year to $13.84 billion. Over the past nine months, the stock has gained 18.3% to close the last trading session at $13.18.
It’s no surprise that KT has an overall rating of A, which translates to a Strong Buy in our proprietary POWR Ratings system.
It has an A grade for Value and Stability and a B for Sentiment. It is ranked #4 in the Telecom – Foreign industry. Beyond what we stated above, we also have given KT grades for Growth, Momentum, and Quality. Get all the KT ratings here.
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AMX shares were unchanged in premarket trading Thursday. Year-to-date, AMX has declined -0.11%, versus a 8.07% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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