The telecom sector’s prospects appear promising thanks to rapid digitalization initiatives, increased demand for high-speed internet, growing adoption of 5G, and the increasing utilization of technologies such as the Internet of Things (IoT) and artificial intelligence (AI).
Considering these factors, it could be wise to buy fundamentally strong telecom stocks Telefônica Brasil S.A. (VIV), Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY), and Spok Holdings, Inc. (SPOK) for potential gains this month.
Before delving deeper into their fundamentals, let’s discuss why the telecom industry is well-positioned for growth.
The telecom industry provides essential services that billions of consumers depend on daily. The industry's growth is driven by the shift towards 5G, the need for better connectivity solutions and enhanced multimedia applications, and the growing importance of data privacy and security.
The global telecom market is projected to grow at a CAGR of 6.2% to reach $3.10 trillion by 2030. This growth is expected to be driven by the demand for better and faster connectivity standards in critical sectors such as e-commerce, media and entertainment, IT and telecom, healthcare, and transportation and logistics.
Telecommunication companies are utilizing technologies such as AI for communication automation and agility. They are also leveraging AI to enhance customer experience, network operation monitoring and management, fraud mitigation, predictive maintenance, and cybersecurity. The global telecom AI market is forecasted to reach $11.29 billion by 2030, exhibiting a growth of 28.2% CAGR.
Investors’ interest in telecom stocks is evident from the Vanguard Communication Services Index Fund ETF Shares’ (VOX) 41% returns over the past year.
Considering these conducive trends, let’s assess the fundamentals of the three telecom industry picks.
Telefônica Brasil S.A. (VIV)
Headquartered in São Paulo, Brazil, VIV and its subsidiaries operate as a mobile telecommunications company in Brazil. Its fixed-line services portfolio includes local, domestic, long-distance, and international long-distance calls. The mobile portfolio comprises voice and broadband internet access through 3G, 4G, 4.5G, and 5G, as well as mobile value-added and wireless roaming services.
In terms of the trailing-12-month Return on Common Equity, VIV’s 7.29% is 144.1% higher than the 2.99% industry average. Its 4.17% trailing-12-month Return on Total Assets is 249.1% higher than the 1.19% industry average. Likewise, the stock’s 5.89% trailing-12-month Return on Total Capital is 82.4% higher than the 3.23% industry average.
VIV’s net operating revenue for the fiscal fourth quarter that ended December 31, 2024, increased 6.9% year-over-year to R$13.54 billion ($2.70 billion). Its EBITDA rose 9.9% year-over-year to R$5.75 billion ($1.15 billion). Also, its net income and EPS grew 42.1% and 42.8% over the prior-year quarter to R$1.60 billion ($318.93 million) and R$0.97, respectively.
Analysts expect VIV’s revenue for the quarter ended March 31, 2024, to increase 6.4% year-over-year to $2.71 billion. Its EPS for fiscal 2024 is expected to increase 16.1% year-over-year to $0.71. Over the past year, the stock has gained 34.5% to close the last trading session at $10.07.
VIV’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong 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 Growth and Quality. Within the A-rated Telecom - Foreign industry, it is ranked #3 out of 44 stocks. To see VIV’s Value, Momentum, and Sentiment ratings, click here.
Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság (MYTAY)
Headquartered in Budapest, Hungary, MYTAY provides fixed-line and mobile telecommunication services for residential and small business customers in Hungary, Bulgaria, Romania, and the Republic of North Macedonia. The company operates in the MT-Hungary and North Macedonia segments.
In terms of the trailing-12-month net income margin, MYTAY’s 9.30% is 243.2% higher than the 2.71% industry average. Its 11.79% trailing-12-month Capex / Sales is 207.3% higher than the 3.84% industry average. Likewise, the stock’s 5.39% trailing-12-month Return on Total Assets is 352% higher than the 1.19% industry average.
For the fiscal fourth quarter that ended December 31, 2023, MYTAY’s revenue increased 15.1% year-over-year to HUF229.19 billion ($626.81 million). The company’s gross profit increased 15.8% year-over-year to HUF122.48 billion ($334.97 million).
For the same quarter, its operating profit grew 29.6% from the year-ago value to HUF36.81 billion ($100.67 million). Also, its adjusted profit attributable to owners of the parent came in at HUF25.79 billion ($70.63 million), up 50.5% over the prior-year quarter.
Street expects MYTAY’s revenue for the fiscal year ending December 31, 2024, to increase 8.3% year-over-year to $2.57 billion. Over the past year, the stock has gained 136.1% to close the last trading session at $12.16.
MYTAY’s solid prospects are reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Value and Stability and a B for Growth, Sentiment, and Quality. It is ranked first in the Telecom - Foreign industry. Click here to see MYTAY’s rating for Momentum.
Spok Holdings, Inc. (SPOK)
SPOK provides healthcare communication solutions in the United States, Europe, Canada, Australia, Asia, and the Middle East. The company's products and services enhance workflows for clinicians and support administrative compliance. It delivers clinical information to care teams when and where it matters to improve patient outcomes and provides GenA Pager, a one-way alphanumeric pager.
In terms of the trailing-12-month gross profit margin, SPOK’s 70.37% is 42.3% higher than the 49.45% industry average. Its 15.68% trailing-12-month EBIT margin is 89.1% higher than the 8.29% industry average. Likewise, the stock’s 11.26% trailing-12-month levered FCF margin is 38.2% higher than the 8.14% industry average.
SPOK’s total revenue for the fourth quarter that ended December 31, 2023, increased 2.1% year-over-year to $33.95 million. Likewise, its net income and net income per share stood at $3.37 million and $0.17, respectively. In addition, its adjusted EBITDA rose 15.3% year-over-year to $6.51 million.
For the quarter ended March 31, 2024, SPOK’s EPS and revenue are expected to increase 46.7% and 5% year-over-year to $0.22 and $34.84 million, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 59.7% to close the last trading session at $15.95.
It’s no surprise that SPOK has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has an A grade for Quality. It is ranked first out of 16 stocks in the Telecom - Domestic industry. Beyond what we stated above, we also have given SPOK grades for Growth, Value, Momentum, Stability, and Sentiment. Get all the SPOK ratings here.
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VIV shares were trading at $10.14 per share on Monday morning, up $0.11 (+1.10%). Year-to-date, VIV has declined -7.31%, versus a 10.54% 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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