Zacks Industry Outlook Features Telefonica Brasil, Lumen Technologies, and VEON

Press Announcement

Chicago, IL – February 26, 2026 – Zacks Equity Research has released an analysis focusing on Telefonica Brasil (VIV), Lumen Technologies (LUMN), and VEON Ltd. (VEON).

Sector Overview: Communication Services

The Diversified Communication Services sector, as tracked by Zacks, is well-positioned to benefit from robust demand trends, fueled by the rapid rollout of 5G technology and the ongoing shift toward cloud and fiber-based networks. Despite these positive drivers, the industry faces challenges such as significant infrastructure spending, fluctuating raw material costs, geopolitical tensions, and high inventory levels, all of which have weighed on profitability.

Companies like Telefonica Brasil S.A., Lumen Technologies, Inc., and VEON Ltd. are expected to gain from the expansion of IoT, the rise of cloud and advanced technologies, and the growing need for scalable fiber infrastructure to support seamless connectivity.

Industry Profile

The Diversified Communication Services industry includes organizations that deliver a broad spectrum of communication solutions—ranging from wireless and wireline to internet services—for both businesses and consumers. Their offerings span mobile and landline telephony, high-speed internet, satellite TV, and various value-added services.

Many of these firms also provide integrated ICT solutions to enterprises and government entities, operate as local exchange carriers, or manage advanced data centers with colocation and managed services. Additional services often include IP networks, private lines, network management, hosting, and the sale, installation, and maintenance of branded IT and telephony equipment.

Key Trends Influencing the Industry

Emphasis on Localized Networks

Industry players are increasingly delivering comprehensive voice, data, technology, and support services tailored to small and mid-sized businesses, aiming to boost margins and ensure long-term viability. By customizing their solutions, these companies help SMBs adapt to technological advancements more effectively.

Simultaneously, firms are leveraging wireline growth, expanding media reach, enhancing customer service, and optimizing costs to increase average revenue per user and attract new clients. The adoption of software-defined networks enables efficient data traffic management, supporting low-latency, high-bandwidth applications for faster data processing.

Additionally, companies are exploring new revenue streams in areas such as consumer goods, precision agriculture, animal husbandry, and digital health, using data-driven insights to enhance productivity.

Pressure on Profit Margins

The surge in video and other bandwidth-heavy applications, driven by widespread smartphone use and 5G deployment, has compelled firms to invest heavily in LTE, broadband, and fiber infrastructure. While these investments are expected to yield long-term benefits, they have temporarily reduced profitability.

Rising raw material costs, high inventory levels, sanctions, and geopolitical instability—particularly in the Middle East—have further disrupted operations for many companies.

Adapting to Demand-Driven Operations

To maintain high performance, ongoing network optimization is essential, driving demand for advanced wireless products and services. Accelerated 5G deployment is set to enhance the industry's scalability, security, and mobility, further promoting IoT adoption.

The expansion of fiber optic networks to support both 4G LTE and 5G standards, as well as wireline connections, is expected to provide a significant boost. Fiber is also crucial for deploying small cells that improve coverage and supplement macro networks. Companies are helping customers transition from scale-based to demand-driven network models, facilitating seamless 5G migration through programmable and automated infrastructure investments.

Industry Outlook: Positive Momentum

The Diversified Communication Services sector is part of the broader Zacks Utilities segment and currently holds a Zacks Industry Rank of #46, placing it among the top 19% of over 250 industries tracked by Zacks.

The average Zacks Industry Rank for this group suggests strong short-term prospects. Historically, the top half of Zacks-ranked industries outperforms the bottom half by more than a two-to-one margin.

Before highlighting select stocks poised for outperformance, let's review the sector's recent market performance and valuation metrics.

Performance and Valuation

Market Performance

Over the past year, the Diversified Communication Services industry has outpaced the S&P 500, gaining 21.2% compared to the S&P 500's 17.6% increase. However, it trailed the broader Utilities sector, which grew by 26.2% during the same period.

Valuation Metrics

Currently, the industry trades at a trailing 12-month EV/EBITDA multiple of 8.96, below both the S&P 500's 17.46 and the Utilities sector's 13.21. Over the past five years, the industry's EV/EBITDA has ranged from a low of 6.03 to a high of 10.5, with a median of 7.56.

Three Communication Services Stocks to Watch

• Telefonica Brasil: Headquartered in Sao Paulo, this subsidiary of Spain's Telefonica SA has been investing in technology upgrades and broadband expansion to stay competitive. Its strong value proposition and customer experience are expected to drive growth in postpaid subscribers. The company projects long-term earnings growth of 21.5% and has averaged a 7.7% earnings surprise over the past four quarters. With a VGM Score of B, the stock has surged 80.1% in the past year. Analyst estimates for current and next-year earnings have been raised by 8.9% and 22.2%, respectively, to $0.86 and $0.88 per share. Telefonica Brasil holds a Zacks Rank #1 (Strong Buy).
• Lumen Technologies: Based in Monroe, LA, Lumen operates a global communications network, offering integrated solutions to meet the demands of the digital era. Its extensive fiber optic infrastructure spans North America, Europe, Latin America, and Asia Pacific. Lumen is advancing its network-as-a-service offerings, such as Ethernet On-Demand and IP-VPN On-Demand, and its robust network and hosting capabilities are expected to drive cloud business growth. The company's managed and cloud services distinguish it from competitors. Analyst estimates for current and next-year earnings have jumped by 90.5% and 83%, respectively, over the past year. Lumen, a Zacks Rank #1 stock, has gained 67.7% in the past year, boasts a VGM Score of A, and has delivered an average four-quarter earnings surprise of 96.9%.
• VEON: Headquartered in Amsterdam, VEON provides voice, data, and other telecom services across several emerging markets, including Russia, Pakistan, Algeria, Uzbekistan, Ukraine, Bangladesh, Kazakhstan, Kyrgyzstan, and Georgia. Analyst estimates for current-year earnings have increased by 25.1% since June 2025. The company continues to invest in digital capabilities, aiming to enhance lifestyles through technology in rapidly growing markets. VEON carries a Zacks Rank #2 (Buy) and has risen 21% over the past year.

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