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3 Satellite Stocks That are Braving Industry Challenges
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The pandemic-triggered business disruption continues to take a heavy toll on the Zacks Satellite and Communication industry. The industry participants are not only concerned about technological advancement but also regulatory decisions, standards and protocols, capital financing, and consumer-oriented digital market forces that dominate the direction of change.
Nevertheless, Iridium Communications Inc. (IRDM - Free Report) , Globalstar, Inc. (GSAT - Free Report) and ORBCOMM Inc. are well positioned to benefit from the growing market penetration of small satellites. The industry players should gain from evolving satellite applications, development of global navigation satellite system, progress in satellite structure and increase in low-cost launching sites for small launch vehicles.
Industry Description
The Zacks Satellite and Communication industry comprises providers of satellite service operations, broadband satellite technologies and Internet services. These companies offer a broad range of communications services to media firms, fixed and wireless telecommunications operators, data networking providers and Internet service providers. They also provide commercial satellite communication services to government and military organizations. The firms offer satellite-based consulting and technical services that include the lifecycle of satellite operations along with infrastructure ranging from satellite and launch vehicle procurement to telemetry and commanding services. They also provide various on-network services. These include transponder services, managed services and teleport facilities to provide monitored broadband, video and private network services.
What's Shaping the Future of Satellite and Communication Industry
High Costs Remain a Concern: The companies cannot escape the key restraint to the satellite industry — high capital expenditures. It needs innovation in a programmatic style, which requires huge research and development expenses to realize the benefits of a small satellite approach. The small satellite programs can also be costly or slow to implement, and with longer development cycles, the total system cost increases. The firms face challenges like inefficient cost structure and increased lead time associated with obtaining spectrum licenses, which leads to a decline in revenues and delays or cancellations of future implementations of products and services. The industry participants encounter challenges that pose a high risk of failure. However, an initial success factor will boost their ability to secure the right funding. Hence, securing capital investments is a key aspect of ensuring cost-effectiveness and market success. Due to the increased number of natural disasters and other calamities, companies are also facing the risk of a complete breakdown of communication devices and services. As a result, lack of demand is weighing on prices. The business is highly capital intensive, which requires prudent long-term capital expenditure decisions.
Policies and Regulatory Hindrances: Satellite data will become more critical over the next few years for transportation, communications and a host of other tools and services. As the reliance on satellite services increases, the risk of disruption needs to be minimized. Satellite communications have made it easier to exchange messages and access the Internet, even in the remotest locations. However, threats like security barriers and cyber-attacks continue to be the major challenges in the mobile and satellite communication used worldwide in aeronautics, energy and maritime industries, emergency services and by government agencies and the military. Entities that are able to bypass stringent security measures can illicitly access confidential information, leading to a widespread security breach. This ultimately results in reduced demand for products and services along with a compromise on the network integrity. The issue of space security is a grave concern, which necessitates a common and international alignment.
Technological Advancement Holds the Key: There has been a radical change in highly specialized satellite manufacturing patterns. More emphasis is put on the use of common buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured at once in an assembly line. Integration and testing have become highly automated. The extent of testing is reduced after prototyping and initial production is completed. Countries with comprehensive space programs have distinct military, economic and scientific advantages but complexity and barriers to entry into space have allowed only a few to develop notable capabilities. The demand for small satellites across geographies is expected to increase over time, with North America having the bulk of the market share followed by Asia Pacific, Europe and the rest of the world. North America maintains its dominance on account of the maximum number of small satellite launches by government end users.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #214, which places it at the bottom 16% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Interestingly, our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have decreased 39.3% over the past year.
Before we present a few satellite and communication stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags Sector, Beats S&P 500
The Zacks Satellite and Communication industry has underperformed the broader Zacks Computer and Technology sector in the past year. However, it has surpassed the S&P 500 composite.
The industry has gained 40.3% over this period compared with the S&P 500’s rise of 40.1%. Meanwhile, the broader sector has rallied 47.9%.
One-Year Price Performance
Industry's Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing satellite and communication stocks. The industry has a trailing 12-month EV/EBITDA of 12.87X compared with the S&P 500’s 17.85X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.94X.
Over the past five years, the industry has traded as high as 22.55X, as low as 7.42X with a median of 12.88X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Satellite and Communication Stocks to Watch
Iridium Communications: Headquartered in McLean, VA, Iridium Communications provides mobile voice and data communication services and products to businesses, the United States and foreign governments, non-governmental organizations and consumers. The company delivers mission-critical services across a broad range of industries, which has allowed its business to remain resilient despite headwinds. Iridium offers competitive broadband services through its Certus technology. It expects to continue benefiting from a recurring service revenue base, driven by subscriber growth and mobile penetration. Iridium Communications currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has remained stable over the past seven days. The stock has gained 49.4% in the past year.
Globalstar: Headquartered in Covington, LA, Globalstar is a leading provider of customizable satellite IoT solutions for customers globally. The company’s solutions allow businesses to streamline operations, providing safety and enabling mobile assets to be monitored remotely via the Globalstar Satellite Network. It is also exploring revenue-generating opportunities outside of its traditional satellite device and service offerings in order to monetize its assets. Globalstar carries a Zacks Rank #3. The consensus estimate for its current-year earnings has remained stable over the past seven days. The stock has skyrocketed 353.5% in the past year.
Price and Consensus: GSAT
ORBCOMM: Headquartered in Rochelle Park, NJ, ORBCOMM is a global provider of Internet of Things (IoT) solutions. The company has made significant progress on the integration initiative, expanded partnership agreements, and launched new products and services. Customer demand for its IoT products and solutions is at high levels. It is focused on driving innovation and expanding its market share in the industrial IoT. ORBCOMM carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has remained stable over the past seven days. The stock has soared 214.6% in the past year.
Price and Consensus: ORBC
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Image: Bigstock
3 Satellite Stocks That are Braving Industry Challenges
The pandemic-triggered business disruption continues to take a heavy toll on the Zacks Satellite and Communication industry. The industry participants are not only concerned about technological advancement but also regulatory decisions, standards and protocols, capital financing, and consumer-oriented digital market forces that dominate the direction of change.
Nevertheless, Iridium Communications Inc. (IRDM - Free Report) , Globalstar, Inc. (GSAT - Free Report) and ORBCOMM Inc. are well positioned to benefit from the growing market penetration of small satellites. The industry players should gain from evolving satellite applications, development of global navigation satellite system, progress in satellite structure and increase in low-cost launching sites for small launch vehicles.
Industry Description
The Zacks Satellite and Communication industry comprises providers of satellite service operations, broadband satellite technologies and Internet services. These companies offer a broad range of communications services to media firms, fixed and wireless telecommunications operators, data networking providers and Internet service providers. They also provide commercial satellite communication services to government and military organizations. The firms offer satellite-based consulting and technical services that include the lifecycle of satellite operations along with infrastructure ranging from satellite and launch vehicle procurement to telemetry and commanding services. They also provide various on-network services. These include transponder services, managed services and teleport facilities to provide monitored broadband, video and private network services.
What's Shaping the Future of Satellite and Communication Industry
High Costs Remain a Concern: The companies cannot escape the key restraint to the satellite industry — high capital expenditures. It needs innovation in a programmatic style, which requires huge research and development expenses to realize the benefits of a small satellite approach. The small satellite programs can also be costly or slow to implement, and with longer development cycles, the total system cost increases. The firms face challenges like inefficient cost structure and increased lead time associated with obtaining spectrum licenses, which leads to a decline in revenues and delays or cancellations of future implementations of products and services. The industry participants encounter challenges that pose a high risk of failure. However, an initial success factor will boost their ability to secure the right funding. Hence, securing capital investments is a key aspect of ensuring cost-effectiveness and market success. Due to the increased number of natural disasters and other calamities, companies are also facing the risk of a complete breakdown of communication devices and services. As a result, lack of demand is weighing on prices. The business is highly capital intensive, which requires prudent long-term capital expenditure decisions.
Policies and Regulatory Hindrances: Satellite data will become more critical over the next few years for transportation, communications and a host of other tools and services. As the reliance on satellite services increases, the risk of disruption needs to be minimized. Satellite communications have made it easier to exchange messages and access the Internet, even in the remotest locations. However, threats like security barriers and cyber-attacks continue to be the major challenges in the mobile and satellite communication used worldwide in aeronautics, energy and maritime industries, emergency services and by government agencies and the military. Entities that are able to bypass stringent security measures can illicitly access confidential information, leading to a widespread security breach. This ultimately results in reduced demand for products and services along with a compromise on the network integrity. The issue of space security is a grave concern, which necessitates a common and international alignment.
Technological Advancement Holds the Key: There has been a radical change in highly specialized satellite manufacturing patterns. More emphasis is put on the use of common buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured at once in an assembly line. Integration and testing have become highly automated. The extent of testing is reduced after prototyping and initial production is completed. Countries with comprehensive space programs have distinct military, economic and scientific advantages but complexity and barriers to entry into space have allowed only a few to develop notable capabilities. The demand for small satellites across geographies is expected to increase over time, with North America having the bulk of the market share followed by Asia Pacific, Europe and the rest of the world. North America maintains its dominance on account of the maximum number of small satellite launches by government end users.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #214, which places it at the bottom 16% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates weak near-term prospects. Interestingly, our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is an outcome of a negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. The industry’s earnings estimates for the current year have decreased 39.3% over the past year.
Before we present a few satellite and communication stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Lags Sector, Beats S&P 500
The Zacks Satellite and Communication industry has underperformed the broader Zacks Computer and Technology sector in the past year. However, it has surpassed the S&P 500 composite.
The industry has gained 40.3% over this period compared with the S&P 500’s rise of 40.1%. Meanwhile, the broader sector has rallied 47.9%.
One-Year Price Performance
Industry's Current Valuation
The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing satellite and communication stocks. The industry has a trailing 12-month EV/EBITDA of 12.87X compared with the S&P 500’s 17.85X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.94X.
Over the past five years, the industry has traded as high as 22.55X, as low as 7.42X with a median of 12.88X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Satellite and Communication Stocks to Watch
Iridium Communications: Headquartered in McLean, VA, Iridium Communications provides mobile voice and data communication services and products to businesses, the United States and foreign governments, non-governmental organizations and consumers. The company delivers mission-critical services across a broad range of industries, which has allowed its business to remain resilient despite headwinds. Iridium offers competitive broadband services through its Certus technology. It expects to continue benefiting from a recurring service revenue base, driven by subscriber growth and mobile penetration. Iridium Communications currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has remained stable over the past seven days. The stock has gained 49.4% in the past year.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: IRDM
Globalstar: Headquartered in Covington, LA, Globalstar is a leading provider of customizable satellite IoT solutions for customers globally. The company’s solutions allow businesses to streamline operations, providing safety and enabling mobile assets to be monitored remotely via the Globalstar Satellite Network. It is also exploring revenue-generating opportunities outside of its traditional satellite device and service offerings in order to monetize its assets. Globalstar carries a Zacks Rank #3. The consensus estimate for its current-year earnings has remained stable over the past seven days. The stock has skyrocketed 353.5% in the past year.
Price and Consensus: GSAT
ORBCOMM: Headquartered in Rochelle Park, NJ, ORBCOMM is a global provider of Internet of Things (IoT) solutions. The company has made significant progress on the integration initiative, expanded partnership agreements, and launched new products and services. Customer demand for its IoT products and solutions is at high levels. It is focused on driving innovation and expanding its market share in the industrial IoT. ORBCOMM carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has remained stable over the past seven days. The stock has soared 214.6% in the past year.
Price and Consensus: ORBC
Zacks Names “Single Best Pick to Double”
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
You know this company from its past glory days, but few would expect that it’s poised for a monster turnaround. Fresh from a successful repositioning and flush with A-list celeb endorsements, it could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in a little more than 9 months and Nvidia which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>