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3 Stocks to Watch From the Satellite and Communication Industry
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Volatile macroeconomic challenges, inflation and supply chain dynamics could affect the growth prospects of the companies within the Zacks Satellite and Communication industry in the near term. Over the long term, these participants are well-poised to gain from an increasing proliferation and cheaper access to space technology. This trend is leading to a diversification in end-market users. AI, Machine Learning and Big Data have given rise to multiple use cases across industries like oil and gas, agriculture, transportation and non-governmental organizations. Geopolitical competition in space as a contested domain is boosting investments by global militaries. Iridium Communications (IRDM - Free Report) , Globalstar (GSAT - Free Report) and Eutelsat Group (EUTLF - Free Report) have significant growth potential on global security threats, surging defense budgets and demand for high-quality imagery and value-added services.
Industry Description
The Zacks Satellite and Communication industry comprises space technology companies that provide satellite imagery, intelligence services and spacecraft and robotics for space exploration, research and national security. They help customers understand and navigate the evolving planet, deliver global broadband communications and explore space. These companies provide communication services to media businesses, fixed and wireless telecommunications operators, data networking providers and Internet service providers. They also offer commercial satellite communication services to government and military organizations. The firms offer satellite-based consulting and technical services, including the lifecycle of satellite operations and infrastructure, ranging from satellite and launch vehicle procurement to telemetry and commanding services.
What's Shaping the Industry's Future
Advancements in Technology Hold the Key: There has been a radical change in highly specialized satellite manufacturing patterns. More emphasis is put on using ordinary buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured in an assembly line. Integration and testing have become highly automated. The extent of testing is lowered after prototyping and initial production is completed. Countries with comprehensive space programs have distinct military, economic and scientific advantages. However, complexity and barriers to entry into space have allowed only a few to develop notable capabilities. The demand for small satellites across regions is expected to increase over time. North America has the bulk of the market share, followed by the Asia Pacific, Europe and the rest of the world. North America maintains its dominance with the highest number of small satellite launches by government end users. The companies continue to align their products and services with the U.S. Department of Defense’s National Defense Strategy needs and the growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diverse end-market users. The companies share a strategic relationship with various government organizations, including military and disaster response agencies and non-governmental organizations, to provide robust, tactical, real-time voice and low-latency data command and control communications. A comprehensive product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits from another. High product quality increases brand loyalty and enhances performance in a competitive market. For civil customers, notably NASA, growth is being driven by space exploration programs. For commercial customers, growth drivers include a strong demand for imagery due to new use cases, space-based remote sensing, Geosynchronous Equatorial Orbit (GEO) replacement demand and Low Earth Orbit (LEO) communications programs. Also, personal satellite communications are witnessing strong demand, leading to subscriber growth.
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of revenues from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The explosion of space-based intelligence, surveillance and reconnaissance and communications is expected to boost government investments in the sector. However, weakness in global macroeconomic conditions could compel customers to lower spending, which does not bode well for industry participants. Volatile supply chain dynamics and inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this industry will likely be affected if there are more interest rate hikes. Also, investor uncertainty amid a broader market slowdown is a hurdle.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #191, which places it in the bottom 24% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries can be attributed to the 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. Since April 30, 2024, the industry’s earnings estimates for the current year have deteriorated from a loss of 34 cents to a loss of 84 cents.
Before we present a few satellite and communication stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms Sector, S&P 500
In the past year, the Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector.
The industry has lost 30.2% over this period against the S&P 500’s increase of 23.7%. The broader sector has moved up 30.5%.
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 6.63X compared with the S&P 500’s 18.79X. The sector’s trailing 12-month EV/EBITDA stands at 18.1X.
In the past five years, the industry has traded as high as 25.46X and as low as 4.43X, with a median of 7.56X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Stocks to Watch in the Industry
Iridium Communications: Iridium is a satellite communications company that offers dedicated commercial global voice and data communications services to businesses and governments in the United States and globally. It also works with non-governmental organizations.
Iridium's performance is powered by higher revenues and lower expenses. Momentum in the commercial sector, with 13% growth in subscriber base, bodes well. Owing to lucrative deal wins from the U.S. government, particularly the ongoing projects on the Space Development Agency, the engineering and support revenues saw a 25% surge from the prior-year level. Its STL service is likely to generate more than $100 million in annual service revenues by 2030. Its share repurchase policy is also noteworthy. Management reiterated its full-year 2024 guidance, forecasting total service revenue growth between 4% and 6%. However, a continued downtrend in the Equipment business poses a headwind. Iridium expects equipment sales for 2024 to be lower than in 2023, aligning more closely with pre-2022 levels. Stiff rivalry and a high debt burden are concerns.
The consensus estimate for its current-year earnings is pegged at 81 cents, up 9.5% in the past 90 days.
Price and Consensus: IRDM
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries worldwide. Globalstar's products include mobile and fixed satellite telephones, simplex and duplex satellite data modems and flexible service packages. Globalstar serves various sectors like oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation, heavy construction, etc.
The company’s efforts to boost the development of its spectrum and wholesale capacity services (especially within government and consumer verticals) bode well. GSAT’s XCOM RAN is specifically designed to support mission-critical, high-performance wireless applications. This technology, when combined with Globalstar’s licensed n53 mid-band spectrum, creates a powerful solution for private and enterprise 5G networks. In the last reported quarter, GSAT’s revenues rose 10% year over year to $60.4 million, driven by higher service revenues amid a soft demand in the subscriber equipment business. The top line beat the Zacks Consensus Estimate by 5%. The company has updated the lower end of its full-year 2024 revenue guidance. It now expects net sales between $235 million and $250 million, raised from the prior view of $225-$250 million.
GSAT currently carries a Zacks Rank #3. The current-year earnings are pegged at a loss of 2 cents compared with a loss of 1 cent reported in the previous year.
Price and Consensus: GSAT
Eutelsat Group: Headquartered in Paris, France, EUTLF is a global provider of satellite communications, connectivity and broadcast services that broadcast television channels (more than 6,500) to cable and satellite homes. Also, it serves fixed and mobile telecommunications services, TV contribution markets, corporate networks and broadband markets for Internet Service Providers and transport, maritime and in-flight markets.
The company continues to pursue strategic collaborations to drive top-line expansion. Eutelsat OneWeb is a subsidiary of Eutelsat that specializes in delivering Internet connectivity in LEO. Eutelsat acquired OneWeb in 2023. With the acquisition, the company became a fully integrated GEO-LEO satellite operator. EUTLF is gaining from steady commercial traction, with a multi-application contract with Intelsat on the LEO constellation.
EUTLF carries a Zacks Rank #3 at present. The Zacks Consensus Estimate for the stock’s current-year earnings is pegged at 73 cents per share, unchanged over the past 90 days. The company had reported a loss of 80 cents in the previous year.
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3 Stocks to Watch From the Satellite and Communication Industry
Volatile macroeconomic challenges, inflation and supply chain dynamics could affect the growth prospects of the companies within the Zacks Satellite and Communication industry in the near term. Over the long term, these participants are well-poised to gain from an increasing proliferation and cheaper access to space technology. This trend is leading to a diversification in end-market users. AI, Machine Learning and Big Data have given rise to multiple use cases across industries like oil and gas, agriculture, transportation and non-governmental organizations. Geopolitical competition in space as a contested domain is boosting investments by global militaries. Iridium Communications (IRDM - Free Report) , Globalstar (GSAT - Free Report) and Eutelsat Group (EUTLF - Free Report) have significant growth potential on global security threats, surging defense budgets and demand for high-quality imagery and value-added services.
Industry Description
The Zacks Satellite and Communication industry comprises space technology companies that provide satellite imagery, intelligence services and spacecraft and robotics for space exploration, research and national security. They help customers understand and navigate the evolving planet, deliver global broadband communications and explore space. These companies provide communication services to media businesses, fixed and wireless telecommunications operators, data networking providers and Internet service providers. They also offer commercial satellite communication services to government and military organizations. The firms offer satellite-based consulting and technical services, including the lifecycle of satellite operations and infrastructure, ranging from satellite and launch vehicle procurement to telemetry and commanding services.
What's Shaping the Industry's Future
Advancements in Technology Hold the Key: There has been a radical change in highly specialized satellite manufacturing patterns. More emphasis is put on using ordinary buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured in an assembly line. Integration and testing have become highly automated. The extent of testing is lowered after prototyping and initial production is completed. Countries with comprehensive space programs have distinct military, economic and scientific advantages. However, complexity and barriers to entry into space have allowed only a few to develop notable capabilities. The demand for small satellites across regions is expected to increase over time. North America has the bulk of the market share, followed by the Asia Pacific, Europe and the rest of the world. North America maintains its dominance with the highest number of small satellite launches by government end users. The companies continue to align their products and services with the U.S. Department of Defense’s National Defense Strategy needs and the growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diverse end-market users. The companies share a strategic relationship with various government organizations, including military and disaster response agencies and non-governmental organizations, to provide robust, tactical, real-time voice and low-latency data command and control communications. A comprehensive product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits from another. High product quality increases brand loyalty and enhances performance in a competitive market. For civil customers, notably NASA, growth is being driven by space exploration programs. For commercial customers, growth drivers include a strong demand for imagery due to new use cases, space-based remote sensing, Geosynchronous Equatorial Orbit (GEO) replacement demand and Low Earth Orbit (LEO) communications programs. Also, personal satellite communications are witnessing strong demand, leading to subscriber growth.
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of revenues from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The explosion of space-based intelligence, surveillance and reconnaissance and communications is expected to boost government investments in the sector. However, weakness in global macroeconomic conditions could compel customers to lower spending, which does not bode well for industry participants. Volatile supply chain dynamics and inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this industry will likely be affected if there are more interest rate hikes. Also, investor uncertainty amid a broader market slowdown is a hurdle.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #191, which places it in the bottom 24% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.
The industry’s positioning in the top 50% of the Zacks-ranked industries can be attributed to the 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. Since April 30, 2024, the industry’s earnings estimates for the current year have deteriorated from a loss of 34 cents to a loss of 84 cents.
Before we present a few satellite and communication stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms Sector, S&P 500
In the past year, the Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector.
The industry has lost 30.2% over this period against the S&P 500’s increase of 23.7%. The broader sector has moved up 30.5%.
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 6.63X compared with the S&P 500’s 18.79X. The sector’s trailing 12-month EV/EBITDA stands at 18.1X.
In the past five years, the industry has traded as high as 25.46X and as low as 4.43X, with a median of 7.56X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
3 Stocks to Watch in the Industry
Iridium Communications: Iridium is a satellite communications company that offers dedicated commercial global voice and data communications services to businesses and governments in the United States and globally. It also works with non-governmental organizations.
Iridium's performance is powered by higher revenues and lower expenses. Momentum in the commercial sector, with 13% growth in subscriber base, bodes well. Owing to lucrative deal wins from the U.S. government, particularly the ongoing projects on the Space Development Agency, the engineering and support revenues saw a 25% surge from the prior-year level. Its STL service is likely to generate more than $100 million in annual service revenues by 2030. Its share repurchase policy is also noteworthy. Management reiterated its full-year 2024 guidance, forecasting total service revenue growth between 4% and 6%. However, a continued downtrend in the Equipment business poses a headwind. Iridium expects equipment sales for 2024 to be lower than in 2023, aligning more closely with pre-2022 levels. Stiff rivalry and a high debt burden are concerns.
Iridium carries a Zacks Rank #3 (Hold) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for its current-year earnings is pegged at 81 cents, up 9.5% in the past 90 days.
Price and Consensus: IRDM
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries worldwide. Globalstar's products include mobile and fixed satellite telephones, simplex and duplex satellite data modems and flexible service packages. Globalstar serves various sectors like oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation, heavy construction, etc.
The company’s efforts to boost the development of its spectrum and wholesale capacity services (especially within government and consumer verticals) bode well. GSAT’s XCOM RAN is specifically designed to support mission-critical, high-performance wireless applications. This technology, when combined with Globalstar’s licensed n53 mid-band spectrum, creates a powerful solution for private and enterprise 5G networks. In the last reported quarter, GSAT’s revenues rose 10% year over year to $60.4 million, driven by higher service revenues amid a soft demand in the subscriber equipment business. The top line beat the Zacks Consensus Estimate by 5%. The company has updated the lower end of its full-year 2024 revenue guidance. It now expects net sales between $235 million and $250 million, raised from the prior view of $225-$250 million.
GSAT currently carries a Zacks Rank #3. The current-year earnings are pegged at a loss of 2 cents compared with a loss of 1 cent reported in the previous year.
Price and Consensus: GSAT
Eutelsat Group: Headquartered in Paris, France, EUTLF is a global provider of satellite communications, connectivity and broadcast services that broadcast television channels (more than 6,500) to cable and satellite homes. Also, it serves fixed and mobile telecommunications services, TV contribution markets, corporate networks and broadband markets for Internet Service Providers and transport, maritime and in-flight markets.
The company continues to pursue strategic collaborations to drive top-line expansion. Eutelsat OneWeb is a subsidiary of Eutelsat that specializes in delivering Internet connectivity in LEO. Eutelsat acquired OneWeb in 2023. With the acquisition, the company became a fully integrated GEO-LEO satellite operator. EUTLF is gaining from steady commercial traction, with a multi-application contract with Intelsat on the LEO constellation.
EUTLF carries a Zacks Rank #3 at present. The Zacks Consensus Estimate for the stock’s current-year earnings is pegged at 73 cents per share, unchanged over the past 90 days. The company had reported a loss of 80 cents in the previous year.