Amid the current macroeconomic volatilities, companies are looking for ways to step up innovation and digital transformation in the communication sector, which could be leveraged to boost customer experience, network, and business strength.
Given the communication industry’s rising demand, let us probe into communication stocks Verizon Communications Inc. (VZ), Ribbon Communications Inc. (RBBN), and Nokia Oyj (NOK).
Rising inflation, geopolitical turmoil, soaring interest rates, and recessionary fears have affected the economy, and the telecommunication sector is not entirely insulated from it. However, thanks to the stand-out technologies, the industry is poised to witness significant growth in the foreseeable future.
Furthermore, the U.S. Commerce Department’s National Telecommunications and Information Administration (NTIA) is developing a National Spectrum Strategy to identify at least 1,500 megahertz of spectrum to study for potential new uses. This is expected to boost 5G services.
The strategy is also expected to address spectrum needs, including fixed and mobile wireless broadband, IoT, wireless medical devices and telemedicine, satellite communications and space-based systems, advanced transportation, and industrial and commercial applications.
The consumer demand for low latency, high speed, and high-security technologies has been soaring, which is expected to drive the adoption of 5G services. The global 5G services market is anticipated to expand at a CAGR of 59.4% from 2023 to 2030. Also, the global telecom services market was valued at $1.81 trillion in 2022 and is expected to expand at a CAGR of 6.2% between 2023 and 2030.
Against this backdrop, quality communication stocks VZ, RBBN, and NOK might be solid buys.
Verizon Communications Inc. (VZ)
VZ offers communications, technology, information, and entertainment products and services worldwide to consumers, businesses, and governmental entities. It operates through two segments: Consumer and Business.
On March 16, as part of one of the biggest network upgrades in history, VZ brought new wireless home and business internet options that utilize 5G Ultra-Wideband to residents and businesses in Newark and Trenton in New Jersey, Syracuse, New York, and Wilkes-Barre, Pennsylvania.
On March 2, VZ revealed an Edge Discovery & Quality of Service (QoS) API proof of concept with Amazon Web Services, Inc. (AWS) that allows customers to combine Dynamic Quality of Service (QoS) from VZ with AWS edge services. This combination should enable customers to deploy low latency, high bandwidth applications across a variety of emerging use cases.
In March, VZ announced a quarterly dividend of 65.25 cents per outstanding share, payable to its shareholders on May 1, 2023. The company made $10.80 billion in dividend payments in 2022. It has increased its dividend for 18 consecutive years. This reflects its ability to pay back its shareholders.
In terms of forward non-GAAP P/E, VZ is trading at 7.85x, 49.5% lower than the industry average of 15.54x. Its forward EV/EBITDA multiple of 7.00 is 14.9% lower than the industry average of 8.23x.
VZ’s trailing-12-month net income margin of 15.53% is 393.6% higher than the 3.15% industry average, while its trailing 12-month ROCE of 24.58% is 625% higher than the industry average of 3.39%.
For the fiscal fourth quarter that ended December 31, 2022, VZ’s total operating revenues increased 3.5% year-over-year to $35.25 billion. The company’s wireless equipment revenue grew 4.1% from the prior-year period to $7.63 billion. Net income rose 41.4% year-over-year to $6.70 billion, while its adjusted EPS stood at $1.19 for the same quarter.
Analysts expect VZ’s revenue for the fiscal first quarter (ending March 2023) to increase 1.2% year-over-year to $33.95 billion. For the same quarter, EPS is expected to come in at $1.19. The company shows an impressive earnings surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
The stock gained 1.7% intraday to close the last trading session at $37.43. It has gained 1.6% over the past five days.
VZ’s POWR Ratings reflect this positive outlook. VZ has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The company has a B grade for Stability. Within the Telecom – Domestic industry, it is ranked #4 among 19 stocks.
Click here to see the additional POWR Ratings of VZ for Growth, Value, Momentum, Sentiment, and Quality.
Ribbon Communications Inc. (RBBN)
RBBN is a technology company that delivers communications software, IP, and optical networking solutions to service providers, enterprises, and critical infrastructure sectors globally. The company also provides agility, including core-to-edge software-centric solutions, cloud-native offers, leading-edge security, analytics tools, and IP and optical networking solutions for 5G.
On March 6, RBBN announced the launch of its breakthrough Apollo OT9408 platform, a next-generation compact modular transport platform. This would enable both capacity-reach-optimized and cost-power-optimized solutions that can function alongside each other, offering maximum spectrum utilization.
In terms of forward EV/Sales, RBBN is trading at 1.08x, which is 60.1% lower than the industry average of 2.70x. Also, in terms of its forward Price/Sales, it is trading at 0.71x, 72.8% lower than the industry average of 2.59x.
RBBN’s trailing-12-month gross profit margin of 52.76% is 5.2% higher than the 50.17% industry average.
RBBN’s total revenue for the fiscal fourth quarter (ended December 31, 2022) increased 1.3% year-over-year to $233.64 million. The company’s gross profit stood at $114.01 million. Its non-GAAP net income grew significantly year-over-year to $15.49 million for the quarter. Also, the company’s non-GAAP earnings per share amounted to $0.09, representing an increase of 800% from the prior-year quarter.
Analysts expect RBBN’s revenue to increase 3.6% year-over-year to $213.27 million in the fiscal second quarter ending June 2023. Its EPS is expected to increase 4.2% year-over-year to $0.06. Also, the company has an impressive earnings surprise history, surpassing the consensus revenue estimates in three of the trailing four quarters.
The stock has gained 42.7% over the past three months to close its last trading session at $3.71. It has also gained 33.9% over the past six months.
RBBN’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has an A grade for Growth and a B for Value and Momentum. RBBN is ranked #6 in the B-rated 49-stock Technology - Communication/Networking industry.
We’ve also graded RBBN for Stability, Sentiment, and Quality. Click here to access all of RBBN’s ratings.
Nokia Oyj (NOK)
Headquartered in Espoo, Finland, NOK provides mobile, fixed, and cloud network solutions worldwide. The company operates through four segments Mobile Networks; Network Infrastructure; Cloud and Network Services; and Nokia Technologies.
On March 7, NOK announced that its Converged Charging software solution had been selected by Hrvatski Telekom to help the Croatian operator modernize on-line charging and better harness network monetization opportunities that can unlock new revenue streams.
The deal expands NOK’s partnership with Hrvatski Telekom, which already uses a variety of other NOK products, including its Voice Core and other software applications.
On February 27, NOK announced a contract with MTN South Africa to offer 5G Radio Access Network (RAN) equipment. This is expected to enhance NOK’s market position in South Africa and assists MTN in providing greater 5G experiences to its users.
On January 26, the board resolved to distribute a dividend of €0.02 per share. The dividend was paid to the shareholders on 9 February 2023. This reflects its cash generation abilities.
NOK’s forward EV/Sales of 0.80x is 70.2% lower than the industry average of 2.70x. Its forward EV/EBITDA multiple of 5.12 is 61.2% lower than the industry average of 13.19.
NOK’s trailing-12-month EBIT margin of 10.95% is 135.5% higher than the 4.65% industry average, while its trailing 12-month EBITDA margin of 14.62% is 48.2% higher than the industry average of 9.87%.
NOK’s net sales came in at €7.45 billion ($7.93 billion) for the fourth quarter that ended December 31, 2022, increasing 16.1% year-over-year. Moreover, its gross profit came in at €3.19 billion ($3.39 billion), up 25.8% year-over-year. Its profit rose 363.5% year-over-year to €3.15 billion ($3.35 billion), while its EPS came in at €0.56, representing an increase of 366.7% year-over-year.
NOK’s revenue is expected to increase 9.9% year-over-year to $6.59 billion in the fiscal second quarter ending June 2023. Its EPS is expected to come in at $0.10 for the same quarter. It surpassed revenue estimates in each of the four trailing quarters.
NOK’s shares gained 1.1% intraday to close the last trading session at $4.57.
NOK’s promising prospects are reflected in its POWR Ratings. The stock’s overall A rating indicates a Strong Buy in our proprietary rating system.
NOK has an A grade for Value and a B for Growth, Sentiment, and Momentum. In the Technology – Communication/Networking industry, it is ranked #4.
Click here for the additional POWR Ratings for Stability and Quality for NOK.
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VZ shares were trading at $37.61 per share on Tuesday morning, up $0.18 (+0.48%). Year-to-date, VZ has declined -3.04%, versus a 3.92% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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