Over the past two years, the telecom industry has experienced rapid growth, owing in no small measure to remote lifestyles. The increased deployment of wireless communications to meet the high demand and growing adoption of technologies that include 5G, Artificial Intelligence (AI), and Machine Learning (ML), are accelerating the industry’s growth. Furthermore, the $1.2 trillion infrastructure Investment and Jobs Act (IIJA) passed last year has devoted $65 billion for nationwide broadband adoption, which should boost the domestic telecom sector.
According to a report by Precedence Research, the global telecom services market is expected to reach $2.65 trillion by 2030, growing at a 4.9% CAGR. The strong demand for high-speed data connectivity, 5G services roll-out, and increased spending on the deployment of wireless infrastructure are the key factors that should drive the industry’s growth.
Therefore, we think it could be wise to add fundamentally sound yet cheap telecom stocks Lumen Technologies, Inc. (LUMN) and InterDigital, Inc. (IDCC) to one’s portfolio. These stocks have an overall A (Strong Buy) or B (Buy) rating in our proprietary POWR Ratings system.
Lumen Technologies, Inc. (LUMN)
LUMN is a facilities-based technology and communications company that provides integrated communications to residential and business customers in the U.S. and internationally. The Monroe, La.-based concern operates through five segments: International and Global Accounts Management; Enterprise; Small and Medium Business; Wholesale; and Consumer.
On May 19, LUMN’s Board of Directors declared a regular quarterly cash dividend of $0.25 per share. The dividend is payable on June 10, 2022. The payment of dividends regularly reflects the company’s strong financial position and healthy cash flows.
In April, LUMN selected Alianza’s cloud communications platform. “Through Alianza's platform, we are strengthening our portfolio of next generation cloud services to enable the speed, scale, and agility the market demands. Together, we are uniquely positioned to help Lumen's customers successfully navigate from legacy voice services to the cloud. This helps us achieve our strategic revenue growth goals and differentiates us from over-the-top competitors,” said Scott Velting, VP of Product Management at LUMN.
In its fiscal 2022 first quarter, ended March 31, 2022, LUMN's operating income grew 9.7% year-over-year to $1.08 billion. The company’s net income and earnings per share amounted to $599 million and $0.59, respectively, registering a rise of 26.1% and 34.1% year-over-year. Its cash and cash equivalents and total current assets came in at $366 million and $11.77 billion, respectively, as of March 31.
In terms of non-GAAP forward P/E, LUMN is currently trading at 7.13x, which is 58.9% lower than the 17.33x industry average. Furthermore, its 5.87x forward EV/EBITDA is 26.6% lower than the 8.00x industry average.
The stock has gained 9.1% in price over the past month and closed yesterday's trading session at $11.96.
LUMN's POWR Ratings reflect this promising outlook. It has an overall B grade, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
LUMN has an A grade for Value and a B for Quality. Within the Telecom - Domestic industry, it is ranked #3 of 21 stocks. To see additional POWR Ratings (Stability, Growth, Momentum, and Sentiment) for LUMN, click here.
InterDigital, Inc. (IDCC)
IDCC in Wilmington, Del., designs and develops technologies to enable and enhance wireless communications in the U.S., China, South Korea, Japan, Taiwan, and Europe. The company provides technology solutions, including 3G, 4G, 5G, and IEEE 802-related products, cellular technologies, such as CDMA, TDMA, OFDM, and MIMO, mobile terminal devices, and connected consumer electronic products. In addition, it offers video coding and transmission technologies.
On March 30, IDCC’s board of directors declared a regular quarterly cash dividend of $0.35 per share on its common stock. The dividend was paid on April 27.
IDCC's total revenue has increased 23% year-over-year to $101.32 million in its fiscal year 2022 first quarter, ended March 31, 2022. Its income from operations rose 151.8% year-over-year to $30.19 million. Its adjusted EBITDA improved 62.9% year-over-year to $55.40 million. In addition, the company’s adjusted net income and adjusted net income per share were $17.70 million and $0.58, respectively, registering an increase of 347.3% and 222.2% year-over-year.
In terms of forward non-GAAP P/E, IDCC is currently trading at 15.27x, which is 15.5% lower than the 18.07x industry average. Its 10.83 forward EV/EBIT multiple is 28.3% lower than the 15.11x industry average.
Analysts expect IDCC’s revenue for its fiscal 2022 second quarter, ending June 30, 2022, to come in at $117.45 million, indicating a 33.9% increase year-over-year. Also, the $1.29 consensus EPS estimate for the current quarter represents a 114.2% rise from the same period in 2021. The company has an impressive revenue and earnings history; it has topped the consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of IDCC have increased 4.7% in price over the past month and closed yesterday's trading session at $60.24.
IDCC's strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of A, which translates to Strong Buy in our proprietary rating system.
IDCC has an A grade for Growth and a B for Value and Sentiment. Within the Telecom - Domestic industry, it is ranked #1 of 21 stocks. To see additional POWR Ratings (Momentum, Stability, and Quality) for IDCC, click here.
LUMN shares were trading at $12.24 per share on Thursday morning, up $0.28 (+2.34%). Year-to-date, LUMN has declined -0.10%, versus a -14.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.
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