Satellite and Communication industry companies are benefiting from a vast proliferation and cheaper access to space technology. 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 resulting in further investments by global militaries. Iridium Communications ( IRDM Quick Quote IRDM - Free Report) , Maxar Technologies ( MAXR Quick Quote MAXR - Free Report) and EchoStar Corporation ( SATS Quick Quote SATS - Free Report) have significant growth potential on global security threats, surging defense budgets, 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 and 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 provide 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 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 regions is expected to increase over time, with North America having 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 the 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 improves their 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. Increasing Spending on Space Infrastructure: With more than half of the revenues coming from U.S. government customers, the industry is likely to 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. The companies are developing differentiated capabilities designed for future space exploration, including propulsion, power and robotics. These elements will be critical for helping their customers achieve successful space exploration missions. Focus on research and development and product and service enhancements is a key strategy for innovation and growth. However, increased lead time associated with global supply chain disruptions remain concern. Zacks Industry Rank Indicates Bright Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks
Computer and Technology sector. It currently has a Zacks Industry Rank #42, which places it in the top 17% 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 strong 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. 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 Outperforms Sector, Lags S&P 500
The Zacks Satellite and Communication industry lags the S&P 500 composite but outperformed the broader Zacks Computer and Technology sector in the past year.
The industry has lost 22.2% over this period against the S&P 500’s decline of 17.8%. The broader sector has plunged 38.7%. 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 8.29X compared with the S&P 500’s 11.66X. It is also below the sector’s trailing 12-month EV/EBITDA of 9.31X.
In the past five years, the industry has traded as high as 22.93X, as low as 7.48X, with a median of 10.58X, 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 various industries, allowing its business to remain resilient despite headwinds. Iridium offers competitive broadband services through its Certus technology. Iridium’s performance is benefiting from its expanding subscriber base driven by the demand for consumer-oriented devices and higher services’ revenues. Iridium expects commercial service revenues to benefit from growth in IoT, ongoing activations and solid uptake of the company’s broadband services. Iridium carries a Zacks Rank #2 (Buy). The consensus estimate for its current-year earnings has remained unchanged in the past 30 days at 9 cents. The stock has gained 48% in the past two-year period. The company delivered a trailing four-quarter earnings surprise of 109.4%, on average. Price and Consensus: IRDM Maxar: Based in Westminster, CO, Maxar is a space technology firm providing satellite imagery and expert intelligence services along with spacecraft and robotics for space exploration, research and national security. Maxar’s performance is gaining from continued momentum in the Space Infrastructure segment. Increasing demand for the company’s 3D and other innovative geospatial products bodes well. There is huge growth potential among three key parts of its addressable market — the U.S. government, other international governments and commercial customers. In May 2022, the company announced that it was awarded Electro-Optical Commercial Layer (EOCL) contract by the U.S. National Reconnaissance Office (NRO). The contract includes a five-year base contract worth $1.5 billion with five additional years of options through 2032. It is the largest ever commercial imagery acquisition contract awarded by the NRO. The Zacks Consensus Estimate for its current-year earnings has moved up 14.3% over the past 30 days. The company delivered a trailing four-quarter earnings surprise of 183.7%, on average. The stock has gained 62.5% in the past two-year period. It currently carries a Zacks Rank #2. Price and Consensus: MAXR 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 provides 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 segments. The company recently deployed pan-European LoRa-powered Internet of Things (IoT) network. This network leverages EchoStar Mobile's licensed S-band spectrum from the EchoStar XXI satellite and provides bi-directional and LoRa-powered connectivity (real-time) across Europe using a single network, added the company. Currently, EchoStar carries a Zacks Rank #3 (Hold). Price and Consensus: SATS