Analyzing the Buy Potential of 3 Top-Rated Telecom Stocks

The telecom sector's growth is propelled by increased investments in 5G infrastructure, a growing mobile subscriber base, rising demand for high-speed data connectivity, and a significant shift towards advanced technologies. Therefore, investors could consider buying quality telecom stocks Telefónica, S.A. (TEF), Hellenic Telecommunications Organization S.A. (HLTOY), and Ooma, Inc. (OOMA) this month.

The telecommunications sector is pivotal in establishing and maintaining the infrastructure that facilitates our interconnected world and sustains seamless communication. The US telecom market is estimated to be $443.12 billion this year. It is further expected to reach $530.61 billion by 2029, growing at a CAGR of 3.7%. This highlights the continuous progress in the communication network sector, reflecting the ongoing technological advancements in recent decades.

In addition, online communication is becoming increasingly important in sectors such as education, healthcare, and IT. The growing requirement for high-speed connectivity to facilitate data transfer and meet various public and personal needs is driving demand in the telecom services market. The global telecom services market, valued at $1.81 trillion in 2022, is expected to grow at a CAGR of 6.2% from 2023 to 2030.

Furthermore, the surge in data traffic, fueled by the proliferation of connected devices, coupled with the demand for high-speed data services, stands as a primary catalyst for 5G adoption. The expansion of Internet of Things (IoT) applications and the imperative role of 5G in Industry 4.0 and smart city initiatives contribute significantly to the market's upward trajectory.

The 5G services market is expected to total around $1 trillion by 2028, growing at a CAGR of 52.4% from 2023 to 2028.

With these favorable trends in mind, let's delve into the fundamentals of the three telecom stock picks.

Telefónica, S.A. (TEF)

Headquartered in Madrid, Spain, TEF provides telecommunications services in Europe and Latin America. The company offers a wide range of telecommunication services, including PSTN lines, public telephone services, ISDN accesses, and domestic and international long-distance.

TEF’s trailing-12-month levered FCF and net income margins of 13.05% and 4.38% are 70.5% and 36.3% higher than the industry averages of 7.65% and 3.21%, respectively.

On December 19, 2023, TEF announced that it had entered into a partnership with ONCE to enhance accessibility in immersive experiences for visually impaired individuals within TEF's products and services.

The collaboration focuses on making Movistar Immersive Experience more accessible, researching accessibility in virtual reality experiences, and utilizing artificial intelligence to enhance inclusivity.

With a four-year average dividend yield of 9.06%, the company pays an annual dividend of $0.33, which yields 8.19% on the prevailing price level.

During the nine months that ended September 30, 2023, TEF’s revenue rose 2.4% year-over-year to EUR30.50 billion ($33.37 billion). Its underlying OIBDA increased 1.3% from the prior-year period to EUR9.65 billion ($10.56 billion). Its profit for the period stood at EUR1.48 billion ($1.62 billion), and EPS attributable to equity holders of the parent came in at EUR0.19.

The company’s revenue and EPS are expected to rise 6.3% and 5.2% year-over-year to $45.04 billion and $0.35, respectively, in the fiscal year ending December 2023. Also, the company has surpassed the consensus revenue estimates in each of the trailing four quarters, which is impressive.

The stock has returned 8.4% over the past year to close the last trading session at $4.02.

TEF’s POWR Ratings reflect this promising outlook. The stock has an overall grade of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted optimally.

TEF has a grade of B for Value and Stability. Among the 46 stocks in the A-rated Telecom – Foreign industry, it is ranked #17.

Click here to access the additional POWR Ratings for Growth, Momentum, Sentiment, and Quality for TEF.

Hellenic Telecommunications Organization S.A. (HLTOY)

Based in Athens, Greece, HLTOY is a telecommunications company that provides telecommunications and related services in Greece and Romania. It operates through OTE; COSMOTE Group; and Telekom Romania Mobile segments. The company offers a range of services, including fixed-line, Internet access, ICT, TV production, international carrier services, etc.

HLTOY’s trailing-12-month EBIT and net income margins of 20.50% and 11.37% are 153.8% and 254% higher than the industry averages of 8.08% and 3.21%, respectively.

The company pays an annual dividend of $0.32, which yields 4.45% on the current market price, compared to its four-year average dividend yield of 4.63%. The company has raised its dividend payouts at a CAGR of 9.5% over the past five years.

During the fiscal third quarter that ended September 29, HLTOY’s revenue and gross profit amounted to EUR881 million ($963.94 million) and EUR681.10 million ($745.22 million). Operating income came in at EUR204.80 million ($224.08 million). Moreover, net income stood at EUR150 million ($164.12 million) and EUR0.18 per share.

Analysts expect HLTOY’s revenue to rise 4.1% year-over-year to $3.81 billion in the fiscal year that ended December 2023.

The stock has soared 8.1% over the past nine months and 3.3% over the past month to close the last trading session at $7.50.

HLTOY’s bright prospects are consistent with its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.

It also has an A grade for Stability and Quality and a B for Growth. The stock is ranked #4 in the Telecom-Foreign industry.

In addition to the POWR Ratings stated above, one can access HLTOY’s Value, Momentum, and Sentiment ratings here.

Ooma, Inc. (OOMA)

OOMA is a publicly traded telecommunications company that offers a variety of communication services, such as Voice over IP (VoIP) calling, to both business and residential customers, as well as mobile users.

On December 7, OOMA announced that it had integrated its Ooma Office business phone service with Clio, a global legal technology leader. This integration aims to enhance the legal client experience during phone interactions by providing seamless access to client information from Clio through the Ooma Office desktop app.

On November 28, OOMA introduced an update to its Ooma AirDial® solution for POTS replacement. The enhancement incorporates Ooma's MultiPath technology, a patented feature that ensures uninterrupted backup for life-safety devices, including fire alarm panels and elevator phones, within the smart communications platform for businesses and consumers.

During the fiscal third quarter, which ended October 31, 2023, OOMA generated total revenue of $59.86 million, up 5.6% year-over-year. The company generated a non-GAAP gross profit of $37.37 million, up 3% year-over-year. Moreover, its adjusted EBITDA grew 10.8% compared to the previous-year quarter to $4.99 million. The company's non-GAAP net income rose 16.1% and 7.1% year-over-year to $4.02 million and $0.15 per share.

In the fourth quarter of fiscal 2024, OOMA anticipates total revenue between $61.20 million and $61.80 million. It expects non-GAAP net income between $3.10 million and $3.40 million, with non-GAAP net income per share in the $0.12 to $0.13 range.

Street expects revenue to rise 8.8% year-over-year to $61.46 million in the fiscal fourth quarter ending January 2024. The company has surpassed the revenue estimate in each of the trailing four quarters.

The stock declined marginally intraday to close the last trading session at $10.49.

OOMA’s POWR Ratings reflect this sound outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.

OOMA has a B grade for Growth, Value, Stability, and Sentiment. Within the Telecom-Domestic industry, it is ranked #2 among 17 stocks.

To see OOMA’s additional POWR Ratings for Momentum, Sentiment, and Quality, click here.

What To Do Next?

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TEF shares were trading at $4.05 per share on Friday morning, up $0.03 (+0.75%). Year-to-date, TEF has gained 3.85%, versus a -1.35% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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