3 Communication Stocks Likely to Weather Industry Headwinds

Industry Overview - The Zacks Diversified Communication Services industry is facing shrinking profit margins due to high capital expenditures for 5G infrastructure, unpredictable raw material prices, supply-chain disruptions, and intense market volatility [1][4] - The industry comprises firms providing a wide array of communication services, including wireless, wireline, and Internet services to both businesses and consumers [3] Current Challenges - The industry is experiencing high raw material prices and a shortage of chips, which are essential for telecom equipment, affecting operational schedules and profitability [4] - Short-term profitability is compromised as companies invest heavily in upgrading networks to meet the growing demand for data and video services [5] - Demand erosion is evident as customers switch to lower-priced alternatives, leading to a decline in traditional telephony services and overall network access revenues [6] Future Prospects - Despite current challenges, the industry is expected to benefit from an accelerated rollout of 5G technology and increased fiber densification in the long run [1] - Companies are focusing on providing customized services to small and mid-sized businesses (SMBs) to improve profitability and adapt to technological advancements [7] Market Performance - The Zacks Diversified Communication Services industry has underperformed compared to the S&P 500 and the broader Zacks Utilities sector over the past year, with a growth of only 5.8% compared to 16.1% and 16.8% respectively [10] - The industry currently trades at a trailing 12-month EV/EBITDA of 13.37X, below the S&P 500's 18.65X and the sector's 15.91X [13] Notable Companies - Telefónica, S.A. (TEF): The company has launched 5G+ in multiple countries and has seen significant upward revisions in earnings estimates, with a Zacks Rank of 2 (Buy) [16] - Rogers Communications Inc. (RCI): The company has introduced a new satellite-to-mobile service, expanding its connectivity footprint, and has a Zacks Rank of 3 (Hold) [19][20] - Lumen Technologies, Inc. (LUMN): Focused on cloudifying telecom services, Lumen has seen a significant upward revision in earnings estimates and has a Zacks Rank of 2 (Buy) [23]