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Global macroeconomic weakness, inflation and supply chain issues could affect the growth prospects of the Zacks Satellite and Communication industry in the near term. Companies within this industry are well-poised to benefit from a vast proliferation and cheaper access to space technology in the long run. This trend is leading to a diversification in end-market users. Artificial Intelligence, 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, Globalstar and EchoStar 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.
The industry players 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
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of the revenues coming from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The proliferation 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. Persistent supply chain issues, component shortages and rising inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this particular industry has reduced due to interest rate hikes and investor uncertainty amid a broader market slowdown. Many industry participants are likely to find the present investment situation highly challenging.
Advancements in Technology Hold the Key: There has been a radical change in highly-specialized satellite manufacturing patterns. More emphasis is put on using common 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, but 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 growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diversified 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 wide product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits obtained from another. Also, high product quality increases brand loyalty and enhances performance in a competitive market.
For civil customers, particularly 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 replacement demand and Low Earth Orbit communications programs. Also, personal satellite communications are witnessing strong demand leading to subscriber growth.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #172, which places it in the bottom 31% 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 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 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries can be contributed to the positive 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. In the past year, the industry's earnings estimates for the current year have decreased 6.4%.
Before we present a few satellite and communication stocks that 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
The Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has lost 25.9% over this period compared with the S&P 500's decline of 7.4%. The broader sector has lost 8.1%.
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 8.85X compared with the S&P 500's 12.68X. The sector's trailing 12-month EV/EBITDA stands at 10.46X.
In the past five years, the industry has traded as high as 22.93X and as low as 7.52X, with a median of 10.10X.
3 Stocks to Watch in the Industry
EchoStar Corporation: Headquartered in Englewood, CO, EchoStar Corporation is a global provider of satellite service operations, video delivery services, broadband satellite technologies and broadband internet services.
The company also offers innovative network technologies, managed services, and various communications solutions for aeronautical, enterprise and government customers. It operates through its Hughes Network Systems and EchoStar Satellite Services business segment.
The Zacks Consensus Estimate for the stock's current-year earnings is pegged at earnings of 61 cents per share, up 27.1% in the past 60 days.
Iridium Communications: Iridium 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 various industries, allowing its business to remain resilient despite headwinds.
Iridium's performance is benefiting from higher demand in subscriber equipment and engineering and support business segments. The Engineering and support service segment is gaining from increased activity with the U.S. government, including a Space Development Agency contract. Iridium expects commercial service revenues to benefit from growth in IoT, ongoing activations and solid uptake of the company's broadband services.
Iridium expects the voice and data business to gain from the increasing demand for newer services like Push-to-Talk and Iridium GO! Services. The company's collaboration with Qualcomm for satellite messaging and emergency services in smartphones is likely to grow its satellite communication business. The service is expected to be available in premium Android smartphones in select regions starting in the second half of 2023.
Iridium carries a Zacks Rank #3 (Hold). The consensus estimate for its current-year earnings is pegged at 5 cents. The stock has gained 52% in the past year. The company delivered a trailing four-quarter earnings surprise of 150%, on average.
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries around the world. 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, and so on.
The company's efforts to boost the development of its spectrum and wholesale services bode well. The company's MSS business is likely to gain momentum in Commercial IoT. The company is gearing up for the launch of its first 2-way IoT product in the latter half of 2023. Globalstar also announced a strategic agreement with Qualcomm. As a part of the partnership, Globalstar's Band 53 has been rolled out across Qualcomm's RF ecosystem and sales network, which includes both the chipset and the front end.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) stock current-year earnings is pegged at a loss of 2 cents compared with a loss of 14 cents reported in the previous year.
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Iridium, Globalstar and EchoStar
For Immediate Release
Chicago, IL – April 21, 2023 – Today, Zacks Equity Research discusses Iridium (IRDM - Free Report) , Globalstar (GSAT - Free Report) and EchoStar (SATS - Free Report) .
Industry: Satellite & Communication
Link: https://www.zacks.com/commentary/2081814/3-stocks-to-watch-from-the-satellite-and-communication-industry
Global macroeconomic weakness, inflation and supply chain issues could affect the growth prospects of the Zacks Satellite and Communication industry in the near term. Companies within this industry are well-poised to benefit from a vast proliferation and cheaper access to space technology in the long run. This trend is leading to a diversification in end-market users. Artificial Intelligence, 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, Globalstar and EchoStar 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.
The industry players 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
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of the revenues coming from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The proliferation 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. Persistent supply chain issues, component shortages and rising inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this particular industry has reduced due to interest rate hikes and investor uncertainty amid a broader market slowdown. Many industry participants are likely to find the present investment situation highly challenging.
Advancements in Technology Hold the Key: There has been a radical change in highly-specialized satellite manufacturing patterns. More emphasis is put on using common 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, but 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 growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diversified 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 wide product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits obtained from another. Also, high product quality increases brand loyalty and enhances performance in a competitive market.
For civil customers, particularly 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 replacement demand and Low Earth Orbit communications programs. Also, personal satellite communications are witnessing strong demand leading to subscriber growth.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #172, which places it in the bottom 31% 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 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 2 to 1.
The industry's positioning in the top 50% of the Zacks-ranked industries can be contributed to the positive 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. In the past year, the industry's earnings estimates for the current year have decreased 6.4%.
Before we present a few satellite and communication stocks that 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
The Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector in the past year.
The industry has lost 25.9% over this period compared with the S&P 500's decline of 7.4%. The broader sector has lost 8.1%.
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 8.85X compared with the S&P 500's 12.68X. The sector's trailing 12-month EV/EBITDA stands at 10.46X.
In the past five years, the industry has traded as high as 22.93X and as low as 7.52X, with a median of 10.10X.
3 Stocks to Watch in the Industry
EchoStar Corporation: Headquartered in Englewood, CO, EchoStar Corporation is a global provider of satellite service operations, video delivery services, broadband satellite technologies and broadband internet services.
The company also offers innovative network technologies, managed services, and various communications solutions for aeronautical, enterprise and government customers. It operates through its Hughes Network Systems and EchoStar Satellite Services business segment.
EchoStar carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for the stock's current-year earnings is pegged at earnings of 61 cents per share, up 27.1% in the past 60 days.
Iridium Communications: Iridium 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 various industries, allowing its business to remain resilient despite headwinds.
Iridium's performance is benefiting from higher demand in subscriber equipment and engineering and support business segments. The Engineering and support service segment is gaining from increased activity with the U.S. government, including a Space Development Agency contract. Iridium expects commercial service revenues to benefit from growth in IoT, ongoing activations and solid uptake of the company's broadband services.
Iridium expects the voice and data business to gain from the increasing demand for newer services like Push-to-Talk and Iridium GO! Services. The company's collaboration with Qualcomm for satellite messaging and emergency services in smartphones is likely to grow its satellite communication business. The service is expected to be available in premium Android smartphones in select regions starting in the second half of 2023.
Iridium carries a Zacks Rank #3 (Hold). The consensus estimate for its current-year earnings is pegged at 5 cents. The stock has gained 52% in the past year. The company delivered a trailing four-quarter earnings surprise of 150%, on average.
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries around the world. 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, and so on.
The company's efforts to boost the development of its spectrum and wholesale services bode well. The company's MSS business is likely to gain momentum in Commercial IoT. The company is gearing up for the launch of its first 2-way IoT product in the latter half of 2023. Globalstar also announced a strategic agreement with Qualcomm. As a part of the partnership, Globalstar's Band 53 has been rolled out across Qualcomm's RF ecosystem and sales network, which includes both the chipset and the front end.
The Zacks Consensus Estimate for this Zacks Rank #3 (Hold) stock current-year earnings is pegged at a loss of 2 cents compared with a loss of 14 cents reported in the previous year.
Why Haven't You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.