As the world’s population continues to digitize, the demand for faster connectivity speeds is only growing. To meet this demand, the wireless industry has been rapidly developing 5G technologies.
Based on a Research and Markets report, the global 5G market is expected to reach $277 Billion by 2025. 5G networks will cover 40% of the world by 2024 according to Ericsson, with these networks expected to handle 25% of all mobile data traffic.
The introduction of 5G coverage and devices has created a new segment in the market, with some stocks representing unique investment opportunities. This new standard is expected to revolutionize online communications, and analysts are saying now’s the time to get on board.
Here are the analysts’ top 3 5G stocks.
T-Mobile US, Inc. (TMUS)
T-Mobile is becoming a strong player in the 5G sector of the market.
After drawn out lobbying and negotiations that lasted 15 months, TMUS and Sprint Corporation (S) are close to finalizing their merger after the Department of Justice gave its approval on July 29. Once the merger is finalized, TMUS will have 90 million customers and be able to compete with AT&T (T) and Verizon’s (VZ) size for the first time in its history. Both of its competitors have about 100 million customers each.
Not to mention the company reported a second quarter earnings beat on July 25. EPS increased from $0.92 in the prior-year quarter to $1.29, surpassing the Street’s $0.99 estimate. Total revenue also gained 4% year-over-year reaching a record high of $11 billion.
While T-Mobile has had trouble in the past with competitive pricing, the Sprint deal puts it in a position to sustain healthy long-term growth.
“Price competition on the low-end — which has been a huge problem for T-Mobile over the past few years — will ease dramatically because the industry will go from Big 4 to Big 3. The company will have a much larger base heading into the mainstream development and roll-out of 5G coverage and 5G phones, giving it broader exposure to that secular growth tailwind. Broadly, this deal should significantly boost T-Mobile’s long term revenue and profit growth prospects,” financial blogger, Luke Lango, writes.
Top analyst, Jennifer Fritzsche, reiterated her Buy rating and raised her price target from $82 to $98 on July 29. She believes share prices could surge by 26% over the next twelve months. “While we are still waiting on the resolution of State lawsuit, we believe this deal is a significant positive for T-Mobile,” the Wells Fargo analyst said. She has a 69% success rate and gets an average return of 8% per rating.
Wall Street takes a bullish stance on TMUS as well. It has a ‘Strong Buy’ analyst consensus, with 6 Buy ratings vs 1 Hold received over the last three months. The stock has an average price target of $92, suggesting 18% upside potential.
Qualcomm Inc. (QCOM)
While its litigation with Apple Inc. (AAPL) has cast a shadow over the chip maker, some analysts are telling investors not to count Qualcomm out just yet.
Many point to QCOM as one of the original forces behind the 5G movement. The company has a wide variety of 5G internet protocols and modem chips, with it only standing to benefit as 5G is more widely deployed.
QCOM also wouldn't be negatively impacted by the T-Mobile/Sprint merger. T-Mobile now has a greater competitive advantage and the resources to offer improved 5G coverage. The better the offerings, the more 5G products that will be sold to consumers, which is good news for Qualcomm.
Despite reporting an earnings miss on July 31 in which revenue dropped 13% year-over-year to almost $5 billion, the company expects a large boost in 2020 and 2021 after the widespread release of 5G smart phones.
Raymond James analyst, Chris Caso, said, “While we can't be as confident in the timing, the improvement is inevitable. The near-term issues don’t change the 5G story.” On August 1, he reiterated his Buy rating and price target of $115, suggesting a whopping 62% upside.
Another analyst, Tal Liani, agrees that demand weakness is a temporary issue ahead of the 5G smart phone release. On August 1, he reiterated his Buy rating and lowered the price target from $105 to $100. Despite the price target drop, he believes share prices could jump 41% over the next twelve months. “We believe Qualcomm's bull case is unchanged, with global 5G roll outs expected to increase both royalty income and demand for semiconductors beginning in 2020. Press reports suggest that all of Apple's 2020 iPhones will contain Qualcomm's 5G chipset, which could drive a 5G cycle across the entire industry," the Merrill Lynch analyst said.
QCOM has a ‘Moderate Buy’ analyst consensus and a $79 average price target, indicating 11% upside potential.
Crown Castle International Corporation (CCI)
In order to deploy 5G coverage, an investment will have to be made in upgrading current infrastructure. The new communication standard will require smaller cell towers and antennas located within several hundred yards of mobile devices. That’s where CCI comes in.
Crown Castle is one of the leading providers of shared communications infrastructure. The company operates 65,000 small cell nodes, with it planning to expand to 85,000 by 2020. It is poised to sustain its long-term growth as carrier networks will more often than not rent tower spaces as opposed to building their own.
On July 17, the company not only reported that its second quarter results had exceeded the mid-point on each of its targets, but also raised its full-year profit guidance. Net income is now expected to be $926 million, up from the previous $821 million estimate. Adjusted funds from operations (AFFD) was raised to $5.94 per diluted share, up from $5.84.
On August 1, CCI got a vote of confidence from J.P. Morgan. Top analyst, Philip Cusick, believes the telecom stock is well positioned to surge as connectivity continues to grow. He upgraded CCI to a Buy and raised his price target from $125 to $150, suggesting 11% upside. Cusick has a 70% success rate and gets an average return of 12% per rating.
Five-star rated financial blogger, Laura Hoy, also believes that CCI is in it for the long haul. “Demand for CCI’s infrastructure will only increase as 5G gains momentum and unlike companies like VZ and TMUS, Crown Castle doesn’t have to battle it out to hold on to subscribers. CCI stock wins as long as mobile usage and the demand for connectivity is growing — and that trend looks likely to continue for the foreseeable future,” she writes.
The telecom stock has a ‘Moderate Buy’ analyst consensus and a $150 average price target, indicating 11% upside potential.