The telecommunications industry is poised for significant expansion, driven by increasing demand for high-speed connectivity, continued innovation and the rapid growth of 5G networks. Therefore, investors might consider buying fundamentally strong telecom stocks Orange (ORAN), América Móvil (AMX) and KT Corporation (KT) for portfolio diversification. Read more.
The outlook for the telecommunications sector is promising due to the expansion of 5G networks, higher spending on 5G infrastructure, the growth of the digital economy and the increasing use of smartphones. Telcos are focusing heavily on security, cloud technology, AI, and better collaboration tools to meet diverse connectivity needs, adding to their positive outlook.
Taking these factors into account, it might make sense to buy fundamentally strong telecom stocks Orange SA (ORAN), América Móvil, SAB de CV (AMX) and KT Corporation (KT).
The telecommunications industry is critical as it provides on-demand connectivity services, supporting seamless communications and digital transformation. Advances in security, cloud technology, AI, and the rise of remote work and virtual collaboration are contributing to the sector’s growth. The global telecommunications market is expected to grow at a CAGR of 6.2% and reach $3.10 trillion by 2030.
Advances in 5G technology have improved network speed, capacity and reliability, meeting the growing needs of businesses and individuals and thereby boosting the growth of the sector. Companies are also exploring “5.5G,” a faster version of 5G, a new generation of mobile internet.
Additionally, AI is revolutionizing the telecommunications sector by streamlining network management, automating customer service, improving predictive maintenance, and increasing cost savings and cybersecurity. The use of AI in the global telecommunications market is expected to reach $21.20 billion by 2030, growing at a CAGR of 40.4%.
Taking these supportive trends into account, we first analyze the fundamentals of the three stocks from the Telecommunications – Foreign sector, starting with the third choice.
Stock #3: Orange SA (ORAN)
ORAN, headquartered in Issy-les-Moulineaux, France, provides various fixed telephony and mobile telecommunications, data transfer and other value-added services to customers, enterprises and other telecommunications operators around the world.
On March 26, 2024, ORAN and MASMOVIL completed a transaction to create a joint venture, forming Spain’s leading operator in terms of the number of customers. The 50:50 partnership will bring significant benefits to consumers and businesses in Spain, with expected synergies of over 490 million euros (US$531.64 million) per year starting four years after completion.
Christel Heydemann, CEO of ORAN, comments that the joint venture is a significant step in ORAN’s long-term European strategy, driving innovation, investment and sustainability for a more robust European telecommunications industry.
On March 19, 2024, at the Orange Business Summit, ORAN announced the launch of two new Trustworthy Generative AI (GenAI) offerings covering infrastructure and applications. This makes ORAN the first company to support the entire lifecycle of trusted GenAI projects.
Developed in collaboration with LightOn and HPE, these solutions aim to facilitate enterprise digital transformation and provide tailored AI services for various use cases while ensuring data security and cost efficiency.
In terms of return on share capital over the last 12 months, ORAN is 7.12%, 140.2% higher than the industry average of 2.96%. The return on assets of 2.22% over the last 12 months is 84% higher than the industry average of 1.20%. Likewise, the stock’s return on assets over the last 12 months was 4.43%, 34.4% higher than the industry average of 3.30%.
ORAN’s revenue for the fiscal year ended December 31, 2023 increased 1.5% year-on-year to 44.12 billion euros ($47.66 billion). Operating profit was 4.97 billion euros ($5.37 billion), up 3.5% year-on-year.
In addition, net income attributable to parent owners and earnings per share attributable to parent increased 13.7% and 16.4%, respectively, compared to the prior-year quarter to 1.60 billion euros ($1.73 billion) and 0.85 euros.
Analysts expect ORAN’s fiscal 2025 revenue to rise 0.7% year-over-year to $47.03 billion. Earnings per share for fiscal 2024 are expected to rise 16.1% year over year to $1.37. Over the past nine months, ORAN shares have fallen 1.8%, closing the last trading session at $11.17.
ORAN’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings evaluate stocks based on 118 different factors, each with its own weighting.
It has a grade of A for stability and a grade of B for value. Within the A-rated Telecommunications – Foreign sector, the company ranks 16th out of 44 stocks. Click here to view ORAN’s growth, momentum, sentiment and quality scores.
Camp No. 2: América Móvil, SAB de CV (AMX)
AMX is based in Mexico City, Mexico and provides telecommunications services internationally. The Company provides wireless and fixed voice services, including airtime, local, domestic and international long distance, and network connectivity services.
In terms of trailing 12-month net profit margin, AMX stands at 9.33%, 264.7% higher than the industry average of 2.56%. Capital expenditure/sales in the last 12 months at 16.07% is 325.8% higher than the industry average of 3.77%. Likewise, the stock’s return on assets over the last 12 months is 4.87%, 303.9% higher than the industry average of 1.20%.
In the fourth fiscal quarter ended December 31, 2023, AMX’s total revenue was MXN200.71 billion (US$12.23 billion). Net profit was US$18.06 billion (US$1.10 billion). Adjusted EBITDA was MXN76.66 billion (US$4.67 million). Additionally, EBIT was MXN41.81 billion (US$2.54 billion).
For the quarter ending March 31, 2024, AMX’s revenue is expected to increase 5% year over year to $12.12 billion. Earnings per share (EPS) for the quarter ended September 30, 2024 is expected to increase significantly year-over-year to $0.40. Over the past six months, the stock has risen 9.1%, closing the last trading session at $18.50.
AMX’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has a grade of A for stability and a grade of B for value and quality. It is ranked 13th in the same industry. Click here to see AMX’s growth, momentum and sentiment scores.
Stock #1: KT Corporation (KT)
Headquartered in Seongnam, South Korea, KT provides internationally integrated telecommunications and platform services. The Company provides landline telephone services, broadband Internet access services, other Internet-related services and data communications services.
In terms of capital expenditures/sales over the last 12 months, KT’s 14% is 271% higher than the industry average of 3.77%. Its trailing 12-month asset turnover ratio of 0.63x is 31% higher than the industry average of 0.48x. Likewise, the stock’s return on common capital over the last 12 months was 6.05%, 104% higher than the industry average of 2.96%.
KT’s operating income for the fourth quarter ended December 31, 2023 increased 1.8% year-on-year to KRW 6.70 trillion (US$ 4.94 billion). Service revenue was KRW 5.72 trillion (US$4.21 billion), up 1.2% year-on-year.
In the same quarter, operating income increased 75.4% year-on-year to KRW 265.60 billion (US$195.67 million). Additionally, EBITDA was KRW 1.28 trillion (US$940 million), up 18.4% from the same quarter last year.
Street expects KT’s fiscal 2024 earnings per share to rise 26.1% year over year to $1.90. Fiscal 2025 revenue is expected to rise marginally year-over-year to $13.84 billion. Over the past nine months, the stock has risen 18.3%, closing the last trading session at $13.18.
It’s no surprise that KT has an overall rating of A, which equates to a Strong Buy in our proprietary POWR rating system.
It has a grade of A for value and stability and a grade of B for sentiment. It ranks 4th in the Telecommunications – Foreign sector. Beyond the above, we also rated KT for growth, momentum and quality. Get all KT reviews here.
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AMX shares were flat in premarket trading Thursday. Year-to-date, AMX is down -0.11%, while the benchmark S&P 500 index is up 8.07% over the same period.
About the Author: Abhishek Bhuyan
Abhishek started his professional career as a financial journalist due to his keen interest in identifying the fundamental factors that influence the future performance of financial instruments.
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