Telecommunication services are essential for reviving the US economy and realizing green and digital transformation. Therefore, I think quality telecom stocks InterDigital, Inc. (IDCC) and Ooma, Inc. (OOMA) might be solid buys before August. However, AT&T Inc. (T) might be best kept on hold for the reasons discussed in this article.
Rising spending on deploying 5G infrastructures due to the shift in customer inclination toward next-generation technologies and smartphone devices is one of the key factors driving the telecom industry.
Also, increasing mobile subscribers, soaring demand for high-speed data connectivity, and the growing demand for value-added managed services are the other potential factors fueling the market growth.
The global telecom services market is expected to expand at a CAGR of 6.2% until 2030.
However, despite the promising potential of the industry for economic growth and transformation, it faces several key restraints. One major challenge lies in the substantial capital investments required for establishing and maintaining these networks.
In addition, the costs associated with building the necessary infrastructure, acquiring spectrum licenses, and deploying advanced technologies can be daunting for operators. Moreover, license fees constitute a significant financial burden for network operators.
Stocks to Buy:
InterDigital, Inc. (IDCC)
IDCC designs and develops technologies that enable and enhance wireless communications in the United States, China, South Korea, Japan, Taiwan, and Europe.
On June 22, 2023, IDCC and the 6G Innovation Centre at the University of Surrey announced a bilateral research partnership to develop 6G enabling technologies that may impact future wireless standards.
Specifically, IDCC will sponsor research and innovation at 6GIC in technologies such as integrated sensing and communication and reconfigurable intelligent surfaces (RIS), both expected to be important features of 6G.
On May 15, IDCC announced that it had signed a new patent license agreement with Alps Alpine Co., Ltd (APELY). The deal covers Alps Alpine’s range of devices under IDCC’s standard essential patents related to HEVC.
IDCC pays $1.40 annually as dividends. This translates to a yield of 1.53% at the current market price, compared to the 4-year average dividend yield of 2.30%.
IDCC’s forward EV/EBITDA of 6.79x is 54.2% lower than the industry average of 14.84x. Its forward EV/EBIT multiple of 10.92 is 42.5% lower than the industry average of 19.
During the fiscal first quarter ended March 31, 2023, IDCC’s total revenues increased 99.7% year-over-year to $202.37 million. Net income attributable to IDCC increased 485% year-over-year to $105.26 million whereas its net income per common share increased 517.2% year-over-year to $3.58.
IDCC’s revenue is expected to be $102.39 million during the fiscal second quarter ended June 2023. Its EPS is expected to increase 41.1% year-over-year to $1.19 for the same quarter. Additionally, it has topped consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 84.8% year-to-date to close the last trading session at $91.44.
IDCC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has a B grade in Value, Growth, and Quality. The stock is ranked #2 out of 18 stocks in the Telecom - Domestic industry.
Beyond what is stated above, we’ve also rated IDCC for Stability, Momentum, and Sentiment. Get all IDCC ratings here.
Ooma, Inc. (OOMA)OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada.
On May 22, 2023, OOMA announced a partnership with NexHealth, the leading patient experience platform, to help dental practices make patient phone calls more personal. Dental care teams can now use the NexHealth Synchronizer to sync patient information from practice management systems with the Ooma Office business phone service so staff can view patient details in real time when taking or making phone calls.
OOMA’s forward EV/Sales of 1.55x is 20.1% lower than the industry average of 1.94x.
OOMA’s total revenue increased 12.9% year-over-year to $56.85 million for the fiscal first quarter that ended April 30, 2023. Non-GAAP net income increased 33.7% year-over-over to $4.01 million and non-GAAP net income per share increased 33.3% year-over-year to $0.16.
Street expects OOMA’s revenue to increase 9.5% year-over-year to $57.66 million in the fiscal second quarter (ending July 2023). Its EPS is expected to increase 18.1% year-over-year to $0.14 for the same quarter. Additionally, it has topped consensus EPS and revenue estimates in each of the trailing four quarters.
The stock gained 20.5% over the past three months to close its last trading session at $14.82.
It’s no surprise that OOMA has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
OOMA also has an A grade for Growth and Sentiment and a B in Value and Stability. It is ranked first in the same industry.
For additional ratings for OOMA for Momentum and Quality, click here.
Stock to Hold:
AT&T Inc. (T)
T provides telecommunications and technology services worldwide. The company operates through two segments, Communications; and Latin America.
On July 6, 2023, T and Boldyn Networks, a leading infrastructure provider in the United States and globally, announced they were bringing significant coverage expansion for the San Francisco Municipal Transportation Agency (SFMTA). Through this partnership, millions of passengers will be getting improved wireless connectivity across tunnels, stations, rail cars, and surrounding areas.
On June 29, 2023, T declared a quarterly dividend of $0.28 payable on August 1, 2023. T pays $1.11 annually as dividends. This translates to a yield of 7.68% at the current market price, compared to the four-year average dividend yield of 6.98%.
While T’s forward EV/Sales of 2.28x is 18% higher than the industry average of 1.94x, its forward EV/EBIT multiple of 10.92 is 42.5% lower than the industry average of 19.
T’s revenues increased marginally year-over-year to $29.90 billion in the fiscal second quarter that ended June 30, 2023. Its adjusted operating income increased 8.5% year-over-year to $6.40 billion. Yet, its adjusted EPS decreased 3.1% year-over-year to $0.63.
Analysts expect T’s revenue to increase marginally year-over-year to $30.26 billion for the fiscal third quarter ending September 2023. However, they expect its EPS to decrease 8.3% year-over-year to $0.62 in the same quarter. The company has failed to surpass revenue estimates in three of the trailing four quarters, which is disappointing.
The stock has plunged 18.2% over the past three months to close the last trading session at $14.45.
The stock has an overall C rating, equating to a Neutral in our proprietary rating system.
T also has a C grade for Value, Stability, Quality, and Growth. It is ranked #9 in the same industry.
Click here to see the additional POWR Ratings for T (Momentum and Sentiment).
What To Do Next?
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IDCC shares were trading at $91.76 per share on Monday morning, up $0.32 (+0.35%). Year-to-date, IDCC has gained 88.16%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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