Strong demand for broadband services and the adoption of 5G, combined with continuing technological advancements in various sectors, has been driving the growth of the telecom industry over the past two years. Telecom companies have successfully weathered several industry headwinds, including an acute semiconductor shortage, increased regulatory concerns, and 5G deployment-related issues over the past year to register growth.
According to a Market Research report, the global Telecom Power System market size is expected to reach $7.23 billion by 2026, growing at a 4.5% CAGR of 4.5%. In addition, the global 5G market is expected to surpass $468.27 billion by 2028, growing at a 70.8% CAGR, driven by the prevalence of IoT devices. Furthermore, digital transformation trends, such as artificial intelligence, cloud computing, robotic process automation, and cyber security should shape the telecom service sector’s growth in many ways over the long term.
Given this backdrop, we think fundamentally strong telecom stocks KT Corporation (KT), Telenor ASA (TELNY), and InterDigital, Inc. (IDCC) could be ideal investments bets now.
KT Corporation (KT)
Headquartered in South Korea, KT provides telecommunications and platform services. The company operates through four segments: Information and Communications Technologies; Finance; Satellite Broadcasting; and Others. It offers fixed-line telephone services, broadband internet connection services, media and content services, data-communication services, financial services, and other services.
On March 21, KT formed a partnership with CJ ENM to enhance its media/content business and widen its distribution channels. This business alliance should accelerate the company’s media/content business growth through diversified business and attract investors.
On February 15, the company decided to launch a new company, ‘kt cloud,’ that specializes in Cloud/IDC to strengthen its corporate value in the industry. This launch should boost KT’s growth potential in accordance with changing market dynamics.
KT’s operating revenue increased 6.7% year-over-year to KRW 6.62 trillion ($5.45 billion) for the fourth quarter, ended Dec. 31, 2021. Its operating income grew 128.4% from its year-ago value to KRW 369.40 billion ($303.85 million), while its net income improved 1,041.1% year-over-year to KRW 424.40 billion ($349.09 million). The company’s EBITDA increased 20.3% from its year-ago value to KRW 1,283.50 billion ($1.06 billion).
The $15.80 billion consensus revenue estimate for its fiscal year 2022 (ending Dec. 31, 2022) represents a 2.6% increase from the same period last year. In addition, the Street expects the company’s EPS to rise at a 4.1% CAGR over the next five years.
Over the past year, the stock has gained 23.3% in price to close the last trading session at $15.16.
KT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
KT also has an A grade for Value and Stability and a B grade for Sentiment. The stock is ranked #5 of 46 stocks in the A-rated Telecom - Foreign industry. Click here to see the other ratings of KT for Growth, Momentum, and Quality.
Telenor ASA (TELNY)
Headquartered in Norway, TELNY is a telecommunication company that offers mobile communication, fixed-line communication, and broadcasting services. The company’s segments include Norway; Sweden; Denmark; Hungary; Bulgaria; Montenegro & Serbia; dtac-Thailand; Digi-Malaysia; Grameenphone-Bangladesh; Pakistan; Myanmar; Broadcast and Other units. It also provides machine-to-machine communication, internet-based services, and financial services.
On February 18, TELNY’s subsidiary Total Access Communication (dtac) and True Corporation agreed to create a new telecom-tech company. The new company is expected to meet the increasing customer expectations and support digital growth.
On January 20, TELNY signed a partnership agreement with Amazon.com, Inc.’s (AMZN) Amazon Web Services to help expand its 5G core transformation and deliver new 5G and edge services to customers. Analysts expect this strategic collaboration to accelerate the advancement of telecommunications in coming years.
TELNY’s mobile subscriber base grew 0.1 million year-over-year to 172 million during the fourth quarter (ended Dec. 31, 2021). And the company’s organic revenues increased 1.9% year-over-year.
On February 2, based on its solid financial position, strong free cash flow of NOK12.67 billion ($1.45 billion), and a leverage ratio of 2.05x, the company’s board of directors proposed a dividend of NOK 9.30 ($1.07) per share, representing a 3% increase from last year.
Analysts expect TELNY’s EPS and revenue to increase 27.8% and 1%, respectively, year-over-year to $0.98 and $12.65 billion in its fiscal 2022.
The stock has gained marginally over the past month to close yesterday’s trading session at $14.63.
TELNY’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system.
TELNY also has an A grade in Stability and a B grade in Quality. Within the Telecom - Foreign industry, it is ranked #20 of 46 stocks.
To see additional POWR Ratings for Growth, Value, Momentum, and Sentiment for TELNY, click here.
InterDigital, Inc. (IDCC)
IDCC in New York City is a mobile and video technology research and development company. It designs and develops technologies that enable connected experiences in a range of communications and entertainment products and services. As of Dec.31, 2021, it had a portfolio of approximately 27,500 patents and patent applications related to wireless communications, video coding, display technology, and other areas.
On January 31, the company was recognized for its wireless and video standards contributions in The Global Top 100 report. “As a key player and contributor to standards, especially for 5G and video, we are honored to be included in this report. We are delighted to be called out as a truly innovative company making forward-looking technology developments, which, in our case, are shaping the future of communications and immersive experiences,” stated Liren Chen, president and CEO of IDCC.
During the fourth quarter ended Dec. 31, 2021, IDCC’s net revenues increased 23% year-over-year to $111.82 million. Its income from operations rose 714.9% from its year-ago value to $25.59 million. The company’s net income increased 785.3% year-over-year to $19.81 million, while its EPS grew 1,850% from the prior-year quarter to $0.70.
The $0.76 consensus EPS estimate for its fiscal first quarter (ended March 2022) represents a 205.6% improvement year-over-year. The $97.72 million consensus revenue estimate for the about-to-be-reported quarter represents an 18.7% increase from the same period last year. The company has an excellent earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters.
Shares of IDCC gained marginally over the past month.
IDCC’s POWR Ratings reflect a strong outlook. The stock has an overall A rating, which translates to a Strong Buy in our POWR Ratings system. The stock has an A grade for Growth and a B grade for Value, Sentiment, and Quality. It is ranked #1 of 19 stocks in the Telecom - Domestic industry.
In addition to the grades I have just highlighted, view IDCC Ratings for Stability and Momentum here.
KT shares were trading at $15.12 per share on Wednesday afternoon, down $0.04 (-0.26%). Year-to-date, KT has gained 20.29%, versus a -6.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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