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Bear of the Day: Viasat, Inc. (VSAT)

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Viasat (VSAT - Free Report) provides broadband and communications products and services globally. The company offers satellite-based fixed broadband services, including internet access and voice-over-internet protocol services to consumers and businesses. Viasat also provides in-flight entertainment and aviation software services to commercial airlines, as well as internet services to cruise ships and yachts. VSAT’s products also assist in earth imaging, remote sensing, and space system design.

The Zacks Rundown

VSAT, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Wireless Equipment industry group, which ranks in the bottom 41% out of more than 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months. This industry has steadily underperformed the market over the past year:

Zacks Investment Research
Image Source: Zacks Investment Research

Candidates in the bottom tiers of industries can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much tougher.

The odds are stacked against VSAT, and the stock is agreeing with this notion. Shares experienced a climax top in November of 2021 and have been in a price downtrend ever since. VSAT stock is hitting a series of 52-week lows and represents a compelling short opportunity.

Recent Earnings Misses

VSAT has fallen short of estimates in three of the last four quarters. The company most recently reported a fiscal Q2 loss back in November of -$0.97/share, missing the $0.22/share consensus EPS estimate by -540.91%. The stock has steadily drifted lower since the announcement.

Over the last four quarters, VSAT has posted an average earnings miss of -350.02%. Consistently falling short of earnings estimates is a recipe for underperformance, and VSAT is no exception.

Deteriorating Outlook

Viasat has been on the receiving end of negative earnings estimate revisions as of late. For the current fiscal year, analysts have revised their EPS estimates downward by -7.1% in the past 60 days. The 2023 Zacks Consensus Estimates is now -$1.81/share, translating to negative growth of -761.9% versus last year. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Zacks Investment Research
Image Source: Zacks Investment Research

Technical Outlook

As illustrated below, VSAT is in a sustained downtrend. Notice how the stock has plunged back below the 200-day moving average (red line), which is sloping down and has acted as resistance throughout the downward move. The stock has not been able to rally much despite the market moving higher this year.

Image Source: StockCharts

While not the most accurate indicator, VSAT has also experienced what is known as a death cross, wherein the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. VSAT would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen nearly 25% in the past year alone. 

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to make new highs anytime soon. The fact that VSAT is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.

Our Zacks Style Scores depict a weakening outlook for this stock, as VSAT is rated a second-worst possible ‘D’ in our Momentum category. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of VSAT until the situation shows major signs of improvement.

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