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These 2 Telecom Stocks Are Rated Buy

Rapid technological developments, the need for faster connectivity, the fast adoption of 5G, and government investments in boosting telecom infrastructure are fuelling the industry's growth. Amid this backdrop, it could be wise for investors to buy fundamentally strong telecom stocks Verizon Communications (VZ) and Ooma (OOMA). These stocks are Buy-rated in our proprietary rating system. Keep reading...

We live in an increasingly connected world, and telecom companies are helping us achieve faster connectivity. With the number of mobile subscribers increasing, the demand for high-speed data connectivity has soared.

The demand for faster connectivity is driving investments in 5G infrastructure and, consequently, driving the growth of the telecom sector. To capitalize on the tailwinds of the telecom industry, investors could look to buy fundamentally strong telecom stocks Verizon Communications Inc. (VZ) and Ooma, Inc. (OOMA). These stocks are Buy-rated in our proprietary rating system.

Before diving deeper into the fundamentals of these stocks, let’s discuss why the telecom industry is well-positioned for growth.

In today’s digital world, one cannot live without connectivity. Telecom companies are aiding faster connectivity through 5G and other services. High-speed network connectivity is critical in enabling digital transformation in enterprises. The long-term prospects of the industry look bright as the demand for faster connectivity increases.

The global telecom services market size is expected to expand at a CAGR of 6.2% from 2023 to 2030. Investors’ interest in telecom stocks is evident from the iShares U.S. Telecommunications ETF’s (IYZ) 5% returns over the past six months.

Let’s discuss the stocks in detail.

Verizon Communications Inc. (VZ)

VZ offers communications, technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide. It operates through two segments: Consumer and Business.

In terms of forward non-GAAP P/E, VZ’s 7.97x is 48.4% lower than the 15.44x industry average. Its 11.02x forward EV/EBIT is 30.4% lower than the 15.83x industry average. Likewise, its 1.14x forward Price/Sales is 7.3% lower than the 1.23x industry average.

For the fiscal fourth quarter that ended December 31, 2022, VZ’s total operating revenues increased 3.5% year-over-year to $35.25 billion. The company’s net income increased 41.4% year-over-year to $6.70 billion. Also, its adjusted EPS came in at $1.19.

Analysts expect VZ’s revenue for the quarter that ended March 31, 2023, to increase marginally year-over-year to $33.69 billion. Its EPS for fiscal 2024 is expected to increase 1.4% year-over-year to $4.75. The company shows an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters.

Over the past six months, the stock has gained 5.6% to close the last trading session at $37.32.

VZ’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.

Within the Telecom - Domestic industry, it is ranked #3 out of 19 stocks. The stock has a B grade for Stability. Click here to see the additional POWR ratings of VZ for Growth, Value, Momentum, Sentiment, and Quality.

Ooma, Inc. (OOMA)

OOMA provides communications services and related technologies for businesses and consumers in the United States and Canada. Among the various products and services it offers are Ooma Office, Ooma Connect, Ooma Managed Wi-Fi, Ooma Enterprise, and Ooma AirDial.

In terms of forward EV/Sales, OOMA’s 1.26x is 31% lower than the 1.82x industry average.

For the fourth quarter that ended January 31, 2023, OOMA’s non-GAAP operating income increased 25.4% year-over-year to $4.02 million. Its non-GAAP net income increased 26.8% from the prior-year quarter to $4.10 million.

Additionally, its adjusted EBITDA increased 26.5% year-over-year to $5.05 million, while its non-GAAP EPS came in at $0.16, representing a 23.1% increase from the year-ago period.

OOMA’s EPS and revenue for the quarter ending April 30, 2023, are expected to increase 13.3% and 12.3% year-over-year to $0.14 and $56.50 million. It has a commendable earnings surprise history, surpassing the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 6.2% to close the last trading session at $12.31.

OOMA’s POWR ratings reflect solid prospects. The stock has an overall rating of A, which equates to a Strong Buy.

It is ranked first in the same industry. In addition, it has an A grade for Growth and Sentiment and a B for Value and Stability. To see the other ratings of OOMA for Momentum and Quality, click here.

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VZ shares were unchanged in premarket trading Monday. Year-to-date, VZ has declined -2.20%, versus a 8.20% rise in the benchmark S&P 500 index during the same period.



About the Author: Malaika Alphonsus

Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.

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