The Zacks Satellite and Communication industry comprises providers of satellite service operations, video delivery services, broadband satellite technologies and broadband Internet services for varied customers around the world. They offer state-of-the-art network technologies, managed services and various communications solutions for aeronautical, enterprise and government customers, among others.
Some of the companies provide satellite voice and data services to commercial and recreational users. They offer network services comprising transponder services, video distribution services, hybrid satellite, fiber and teleport managed services to media companies, fixed and wireless telecommunications operators, data networking service providers, Internet service providers, military and government sectors.
Let’s take a look at the industry’s three major themes:
• The global satellite communication space has gained traction with the expansion of satellite broadband Internet services, arrival of direct-to-home TV offerings and advancement of digital technology, fostering demand for commercial and government welfare schemes. Notably, wireless backhaul services have generated additional revenues for satellite operators as consumers desire extensive coverage with the expansion of mobile Internet connections.
• In order to cater to the increased data demand for mobile connectivity, global satellite service players made steady investments in R&D activities to be at par with emerging technologies and keep their product lines up to date. Technological advancements have led to the convergence of terrestrial mobile phones and satellites. Spurred by the increasing demand for Internet of Things, public safety and augmented reality, the market should witness a promising growth trajectory in the coming years.
• Rising demand for small satellite constellations with increased deployment for commercial end users, easy accessibility and advancements in satellite miniaturization are fueling market growth. The industry’s growth projections are determined by factors like high manufacturing costs, delay in signals and need for replacements among others. The cost of satellite communications technology includes the cost of satellite manufacturing, launch of satellites through a space shuttle and investments in base stations to manage satellites.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently carries a Zacks Industry Rank #109, which places it at the top 43% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates healthy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms 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 is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential. While the industry’s earnings estimates for the current year have been raised 13.3% over the past six months, the same for 2019 surged 45.6%.
Before we present a few satellite and communication stocks that are well positioned to outperform the market based on a strong earnings outlook, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outpaces Sector, S&P 500
The Zacks Satellite and Communication industry has outperformed both the broader Zacks Computer and Technology sector and the S&P 500 composite over the past year.
The industry has declined 6.6% over this period compared with the S&P 500’s fall of 7.7%. Meanwhile, the broader sector has lost 10.9%.
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 7.44X compared to the S&P 500’s 9.82X. It is trading below the sector’s trailing 12-month EV/EBITDA of 9.31X.
Over the past five years, the industry has traded as high as 19.12X, as low as 2.96X with the median of 7.87X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
The industry is expected to show robust growth due to increasing rate of investments in the industry by government organizations. The demand for small satellites across different geographies in the near future is expected to witness an upward trajectory with North America likely to have the bulk of the market share followed by Asia-Pacific, Europe and Rest of the World. North America is expected to maintain its dominance through the forecast period, owing to maximum number of small satellites launches by the government end user in the region.
Greater market penetration of small satellites into disaster management, evolving small satellite application, nations developing their own Global Navigation Satellite System, advancements in small satellite structure and increase in low-cost launching sites for small launch vehicles are expected to create lucrative opportunities for the market. The commercial end user is expected to witness a high growth rate owing to increasing R&D activities to develop small satellite constellation for varied applications such as navigation, provision of global wireless Internet system and telecommunications.
One stock in the space currently sports a Zacks Rank #1 (Strong Buy) that investors may consider betting on now. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Liberty SiriusXM Group (LSXMK - Free Report) : Shares of this Englewood, CO-based satellite and communication firm have gained 10.3% over the past two years. The Zacks Consensus Estimate for the next-year EPS has been revised 4.8% upward over the past 60 days.
Price and Consensus: LSXMK
We are also presenting two stocks with a Zacks Rank #3 (Hold) that are well positioned to grow.
ORBCOMM Inc. (ORBC - Free Report) : The consensus estimate for this Rochelle Park, NJ-based satellite and communication firm’s earnings has remained stable for the next fiscal year, over the past 60 days. The stock has returned 18.5% over the past three years.
Price and Consensus: ORBC
Iridium Communications Inc. (IRDM - Free Report) : Shares of this McLean, VA-based satellite and communication firm have rallied 158.9% in the past three years. The Zacks Consensus Estimate for the next fiscal-year earnings has remained stable in the past 60 days.
Price and Consensus: IRDM
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