Over the past few months, the telecom industry has grown significantly, making consistent innovations and improvements based on 5G, the internet of things (IoT), and artificial intelligence (AI). In addition, the industry has been capitalizing on the growing demand for advanced communication services.
Consumer fixed data services, in particular, have been playing an important role in enabling people to work from home. According to a ResearchAndMarkets report, the global telecom market is expected to grow at a 6% CAGR over the next four years. Asia-Pacific accounted for 34% of the market last year, while North America accounted for 32%.
Against this backdrop, we think it could be wise to bet on quality foreign telecom stocks Telefónica, S.A. (TEF), KT Corporation (KT), and Türk Telekomünikasyon Anonim Sirketi (TRKNY) that are currently trading at discounts to their peers. In addition to having overall A (Strong Buy) or B (Buy) ratings in our proprietary POWR Ratings system, each of these stocks has an A grade for Value.
Telefónica, S.A. (TEF)
Headquartered in Madrid, Spain, TEF provides telecommunications products and services that include its Mobile business, Fixed-line telephony business, and Digital services business. The company serves more than 337 million customers. It offers traditional fixed telecommunication services, internet, and broadband multimedia services, data and business solutions services, and a range of digital services, such as the Internet of Things (IoT).
On August 10, 2021, TEF formed collaboration between Telefónica Tech, TEF’s digital branch, and ATCSC, the cyber security arm of Saudi Arabia’s stc. Telefónica Tech’s International Markets Sales VP, Rames Sarwat, said, “The agreement with ATCSC will allow us to share knowledge on the best techniques to detect and resolve threats in our respective markets, which is essential given the current international expansion of businesses.”
TEF’s revenue increased 3.4% year-over-year in organic terms to €9.96 billion ($11.70 billion) for the second quarter ended June 30, 2021. While its net income increased 1,721.9% year-over-year to €7.74 billion ($9.09 billion), its EPS came in at €1.37 ($1.00), up 1,857.1% year-over-year. Also, its OIBDA came in at €13.47 billion ($15.82 billion), up 3.3% year-over-year.
In terms of forward non-GAAP P/E, TEF’s 12.41x is 39% lower than the 20.34x industry average. The stock’s 1.76x and 0.61x respective forward EV/S and P/Sare lower than the 2.60x and 1.70x industry averages.
Analysts expect TEF’s revenue to be $44.60 billion in its fiscal year 2022, representing a 3.3% year-over-year decline. However, the company’s EPS is expected to increase 6% year-over-year to $0.33 in its fiscal year 2022. In addition, it has surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 12.9% to close yesterday’s trading session at $5.
TEF’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
TEF has an A grade for Value, and a B grade for Growth and Stability. Within the Telecom-Foreign industry, it is ranked #5 of 49 stocks. Click here to see the additional POWR Ratings for Sentiment, Quality, and Momentum for TEF.
KT Corporation (KT)
KT is an established telecommunications company based in South Korea. It operates through four segments: Information and Communications Technologies; Finance; Satellite Broadcasting; and Others. In addition, its primary services include mobile voice and data telecommunications services and fixed-line services.
KT and NeuroSigma jointly announced a memorandum of understanding in June, forming a strategic partnership to develop and commercialize electronic therapies that treat neurological and neuropsychological disorders, including ADHD, depression, and epilepsy. This is expected to expand KT’s offerings in the digital healthcare space.
For the second quarter, ended June 30, 2021, KT’s operating revenue increased 2.6% year-over-year to KRW 6.03 trillion ($5.17 billion). The company’s operating income came in at KRW 475.80 billion ($407.71 million), representing a 38.5% year-over-year rise. Also, its net income increased 77.3% year-over-year to KRW 370.80 billion ($317.74 million).
In terms of forward non-GAAP P/E, KT’s 8.96x is 55.9% lower than the 20.34x industry average. In addition, the stock’s 0.67x and 0.42x respective forward EV/S and P/S are also lower than the 2.60x and 1.70x industry averages.
KT’s revenue is expected to come in at $21.68 billion next year, representing a 2.1% year-over-year rise. In addition, the company’s EPS is expected to increase 32.3% year-over-year to $1.55 in the current year. Over the past nine months, the stock has gained 27.8% to close yesterday’s trading session at $13.93.
It’s no surprise that KT has an overall A rating, which equates to a Strong Buy in our proprietary rating system. In addition, it has an A grade for Stability, Value, and Sentiment.
KT is ranked #3 in the Telecom-Foreign industry. Click here to see the additional POWR Ratings for KT (Growth, Momentum, and Quality).
Türk Telekomünikasyon Anonim Sirketi (TRKNY)
Based in Ankara, Turkey, telecommunication company TRKNY offers a complete range of mobile, broadband, data, TV, and fixed-voice services and innovative convergence technologies. Its operating segments include Fixed Line and Mobile.
The company’s CEO, Ümit Önal, said on August 9, “Our company has been going through an amazing transformation in a rapidly changing world. Through turbulent times we stood calm and mighty, accumulated experiences and expanded our capabilities.”
TRKNY’s revenue increased 17.4% year-over-year to TL8.18 billion ($970.39 million) for the second quarter ended June 30, 2021. The company’s EBITDA increased 24.3% year-over-year to TL4.02 billion ($476.89 million). While its operating profit came in at TL2.50 billion ($296.57 million), up 29.4% year-over-year, its net income increased 29.8% year-over-year to TL 1.27 billion ($150.66 million).
In terms of forward EV/S, TRKNY’s 1.36x is lower than the 2.84x industry average. In addition, the stock’s 2.83x and 0.79x respective forward EV/EBITDA and P/S are also lower than the 10.04x and 1.70x industry averages.
For the current quarter, ending September 30, 2021, analysts expect TRKNY’s revenue to be $1.01 billion, indicating a 16.1% year-over-year rise. Over the past month, the stock has gained 11.1% in price to close yesterday’s trading session at $1.66.
TRKNY’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Value and Quality, and a B grade for Stability.
Click here to see TRKNY’s ratings for Growth, Momentum, and Sentiment as well. Again, TRKNY is ranked #6 in the Telecom-Foreign industry.
TEF shares were trading at $5.05 per share on Wednesday afternoon, up $0.05 (+1.00%). Year-to-date, TEF has gained 29.30%, versus a 20.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…