Zacks Investment Research | Apr 19, 2018 09:28PM ET
The global telecommunications industry is witnessing rapid technological improvement. A growing global economy speeds up the demand for real-time voice, data, and video manifold. The escalation in demand has encouraged telecom service providers to undertake large network extensions while upgrading plans. This in turn has stimulated the requirement for telecom infrastructure developers, particularly wireless equipment manufacturers.
Massive government spending like U.S. broadband infrastructure development program and similar structural subsidies in China and India, have been a boon to telecom service providers and equipment manufacturers. At this stage, investment in wireless equipment stocks with favorable Zacks Rank will be lucrative.
Strong Wireless Infrastructure Market
Fifth-generation (5G) superfast wireless networks will provide the primary impetus to the telecom industry. In September 2017, Moody's Investors Service stated in a report that the evolution towards 5G wireless networks will result in higher capital spending for the U.S. wireless carriers.
In this regard, Internet of Things (IoT) has the potential to emerge the numero uno factor for future growth in the space. Statista’s 2018 report estimates that global telecom services revenues will reach around $1.5 trillion in 2019.
4G LTE Thriving
The LTE network has the highest penetration rate of 90.5% in the North American region. Both Western Europe region & Oceania and Eastern & South-eastern Asia region have a LTE penetration rate of 54%. In the Latin American and Caribbean region, LTE market share has more than doubled year-over-year to 23% in 2017.
This figure is projected to grow 28% by the end of this year and further to 59% in 2021. By the end of 2020, C-RAN, small cells, DAS and carrier Wi-Fi, together with their fronthaul and backhaul segments, will account for more than 45% of total wireless infrastructure spending.
Growing Demand for Fiber Optic Network
Fiber optic cable is a vital infrastructure in order to meet the growing need for cloud-based business data, along with more video-streaming services by individuals. Moreover, fiber-optic cable network is vital for backhaul and last mile local loop, which are required by wireless service providers for their upcoming 5G network.
Dark fiber provides abundant bandwidth which is of utmost necessity for the smooth functioning of high-speed wireless networks such as 4G and 5G. Fiber networks are essential for the growing deployment of small cells. The increase in adoption of small cells can be attributed to the inconvenience in installing large towers in inaccessible areas.
Pro-Growth Measures
The two pro-growth agendas of President Trump, namely, significant cut in corporate tax and deregulation are major catalysts to the Telecom industry. The corporate tax rate was recently lowered from 35% to 21%., marking the rate’s lowest in 78 years. Trump’s tax proposal will result in a huge windfall for telecom operators. The carriers can utilize this money for 5G network R&D and its deployment. This will naturally bolster demand for wireless equipment.
The telecom regulatory body, Federal Communications Commission (FCC), which was revamped by Trump, repealed the Net Neutrality laws in December 2017. Telecom industry will immensely benefit from this decision and will ramp up their project investment. Higher telecom expenditure will eventually benefit wireless equipment manufacturers.
Our Picks
The U.S. wireless equipment industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. In order to stay abreast of competition, existing players need to be constantly on their toes, introducing innovative products to gain from the industry’s growing momentum.
Taking into account these factors, we narrowed down our search to four stocks with a favorable Zacks Rank and a strong growth potential.
The chart below depicts price performance of our four picks in last three months.
Comtech Telecommunications Corp. (NASDAQ:CMTL) designs, develops, produces and markets innovative products, systems and services for advanced communications solutions.
Comtech has expected earnings growth of 232.4% for current year. The Zacks Consensus Estimate for the current year has improved by 156.8% over the last 60 days. The stock sports a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
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