We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
4 Satellite Stocks That are Braving Industry Challenges
Read MoreHide Full Article
The pandemic-triggered business disruption continues to take a heavy toll on the Zacks Satellite and Communication industry. The industry players are concerned not only about technological advancement but regulatory decisions, standards and protocols, capital financing, and consumer-oriented digital market forces that dominate the direction of change.
However, Iridium Communications (IRDM - Free Report) , Maxar Technologies , EchoStar Corporation (SATS - Free Report) and ORBCOMM are expected to benefit from the growing market penetration of small satellites. The companies 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 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 industry participants offer satellite-based consulting and technical services that include the lifecycle of satellite operations, along with infrastructure ranging from satellite and launch vehicle procurement, through telemetry and commanding services. Some of the firms provide satellite voice and data services to commercial and recreational users. They also deliver various on-network services. These include transponder services, managed services, teleport facilities and other ground facilities to provide monitored broadband, video and private network services.
3 Trends Shaping the Future of Satellite and Communication Industry
High Costs Pose Headwinds: The corporations can’t escape the key restraints 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. Small satellite programs can also be costly or slow to implement, and with longer development cycles, the total system cost increases. The companies are faced with challenges like inefficient cost structure and increased lead time associated with obtaining spectrum licenses, leading to a decline in revenues and delays or cancellations of future implementations of products and services. They are expected to face challenges that pose a high potential risk of failure. An initial success factor will be the 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 increasingly crucial 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 most remote locations. However, threats like security barriers and cyber-attacks continue to be the major flaws 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 illegally access confidential information, leading to a widespread security breach, which ultimately results in reduced demand for products and services, in turn compromising the network integrity. The issue of space security is a global concern necessitating a common and international alignment.
Technological Advancement Holds the Key: There’s been a shift 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 many satellites are manufactured at once in an assembly line. Integration and testing have become extremely automated. The extent of testing is reduced after prototyping and initial production is completed. As such, 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 different geographies should grow, 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 #205, which places it at the bottom 19% 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 24.4% since October 2020.
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 Underperforms Sector, S&P 500
The Zacks Satellite and Communication industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has gained 6.4% over this period compared with the S&P 500’s rise of 25.5% and the broader sector’s rally of 45.4%.
One-Year Price Performance
Industry’s Current Valuation
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 11.2X compared with the S&P 500’s 16.95X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.06X.
Over the past five years, the industry has traded as high as 22.36X, as low as 6.04X with a median of 15.44X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
4 Satellite and Communication Stocks to Watch
Iridium Communications: This McLean, VA-based company provides mobile voice and data communications services and products to businesses, the United States and foreign governments, non-governmental organizations and consumers. It offers mission-critical services across a broad range of industries, which has allowed its business to remain resilient despite headwinds. The company continues to see growth in subscriber base, service revenues and cash. It is expected to generate significant free cash flow in 2021. Iridium currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has been revised 24% upward over the past 90 days. The stock has returned 29.7% in the past six months compared with the industry’s 24.3% growth.
Maxar Technologies: This Westminster, CO-based company’s growth strategy is focused on providing leading capabilities in earth intelligence and space infrastructure. Maxar is seeing strong demand as customers continue to rely on it for national security and commercial missions. The company is making progress on a multi-year strategy to position itself for sustained revenue, earnings and cash flow growth. The stock carries a Zacks Rank #3. The consensus estimate for its current-year earnings has been revised 16.7% upward over the past 90 days. The stock has soared 84.7% in the past six months.
Price and Consensus: MAXR
EchoStar Corporation: This Englewood, CO-based company provides broadband satellite technologies and broadband Internet services worldwide. It expects to grow as the demand for connectivity continues to increase. Hughes Network Systems is a wholly owned subsidiary of EchoStar. Hughes is the first managed services provider to deliver a self-healing Wide Area Network edge capability to enterprise customers. EchoStar carries a Zacks Rank #3. The consensus estimate for its next-year earnings has been revised 10.3% upward over the past 90 days. The stock has lost 22.6% in the past six months.
Price and Consensus: SATS
ORBCOMM: This Rochelle Park, NJ-based company is a global leader in the industrial IoT industry. It has made significant progress on the integration initiative, expanded partnership agreements, and launched new products and services. Customer demand for the company’s IoT products and solutions is at high levels. ORBCOMM carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has been revised 40.9% upward over the past 90 days. The stock has gained 84.7% in the past six months.
Price and Consensus: ORBC
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Image: Bigstock
4 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 players are concerned not only about technological advancement but regulatory decisions, standards and protocols, capital financing, and consumer-oriented digital market forces that dominate the direction of change.
However, Iridium Communications (IRDM - Free Report) , Maxar Technologies , EchoStar Corporation (SATS - Free Report) and ORBCOMM are expected to benefit from the growing market penetration of small satellites. The companies 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 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 industry participants offer satellite-based consulting and technical services that include the lifecycle of satellite operations, along with infrastructure ranging from satellite and launch vehicle procurement, through telemetry and commanding services. Some of the firms provide satellite voice and data services to commercial and recreational users. They also deliver various on-network services. These include transponder services, managed services, teleport facilities and other ground facilities to provide monitored broadband, video and private network services.
3 Trends Shaping the Future of Satellite and Communication Industry
High Costs Pose Headwinds: The corporations can’t escape the key restraints 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. Small satellite programs can also be costly or slow to implement, and with longer development cycles, the total system cost increases. The companies are faced with challenges like inefficient cost structure and increased lead time associated with obtaining spectrum licenses, leading to a decline in revenues and delays or cancellations of future implementations of products and services. They are expected to face challenges that pose a high potential risk of failure. An initial success factor will be the 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 increasingly crucial 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 most remote locations. However, threats like security barriers and cyber-attacks continue to be the major flaws 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 illegally access confidential information, leading to a widespread security breach, which ultimately results in reduced demand for products and services, in turn compromising the network integrity. The issue of space security is a global concern necessitating a common and international alignment.
Technological Advancement Holds the Key: There’s been a shift 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 many satellites are manufactured at once in an assembly line. Integration and testing have become extremely automated. The extent of testing is reduced after prototyping and initial production is completed. As such, 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 different geographies should grow, 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 #205, which places it at the bottom 19% 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 24.4% since October 2020.
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 Underperforms Sector, S&P 500
The Zacks Satellite and Communication industry has underperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite in the past year.
The industry has gained 6.4% over this period compared with the S&P 500’s rise of 25.5% and the broader sector’s rally of 45.4%.
One-Year Price Performance
Industry’s Current Valuation
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 11.2X compared with the S&P 500’s 16.95X. It is also below the sector’s trailing 12-month EV/EBITDA of 16.06X.
Over the past five years, the industry has traded as high as 22.36X, as low as 6.04X with a median of 15.44X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
4 Satellite and Communication Stocks to Watch
Iridium Communications: This McLean, VA-based company provides mobile voice and data communications services and products to businesses, the United States and foreign governments, non-governmental organizations and consumers. It offers mission-critical services across a broad range of industries, which has allowed its business to remain resilient despite headwinds. The company continues to see growth in subscriber base, service revenues and cash. It is expected to generate significant free cash flow in 2021. Iridium currently carries a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its current-year earnings has been revised 24% upward over the past 90 days. The stock has returned 29.7% in the past six months compared with the industry’s 24.3% growth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: IRDM
Maxar Technologies: This Westminster, CO-based company’s growth strategy is focused on providing leading capabilities in earth intelligence and space infrastructure. Maxar is seeing strong demand as customers continue to rely on it for national security and commercial missions. The company is making progress on a multi-year strategy to position itself for sustained revenue, earnings and cash flow growth. The stock carries a Zacks Rank #3. The consensus estimate for its current-year earnings has been revised 16.7% upward over the past 90 days. The stock has soared 84.7% in the past six months.
Price and Consensus: MAXR
EchoStar Corporation: This Englewood, CO-based company provides broadband satellite technologies and broadband Internet services worldwide. It expects to grow as the demand for connectivity continues to increase. Hughes Network Systems is a wholly owned subsidiary of EchoStar. Hughes is the first managed services provider to deliver a self-healing Wide Area Network edge capability to enterprise customers. EchoStar carries a Zacks Rank #3. The consensus estimate for its next-year earnings has been revised 10.3% upward over the past 90 days. The stock has lost 22.6% in the past six months.
Price and Consensus: SATS
ORBCOMM: This Rochelle Park, NJ-based company is a global leader in the industrial IoT industry. It has made significant progress on the integration initiative, expanded partnership agreements, and launched new products and services. Customer demand for the company’s IoT products and solutions is at high levels. ORBCOMM carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has been revised 40.9% upward over the past 90 days. The stock has gained 84.7% in the past six months.
Price and Consensus: ORBC
+1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
In addition to the stocks you read about above, would you like to see Zacks’ top picks to capitalize on the Internet of Things (IoT)? It is one of the fastest-growing technologies in history, with an estimated 77 billion devices to be connected by 2025. That works out to 127 new devices per second.
Zacks has released a special report to help you capitalize on the Internet of Things’s exponential growth. It reveals 4 under-the-radar stocks that could be some of the most profitable holdings in your portfolio in 2021 and beyond.
Click here to download this report FREE >>