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Encouraging Outlook for Satellite and Communication Industry
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The Zacks Satellite and Communication industry comprises providers of satellite service operations, broadband satellite technologies and Internet services. The companies offer a range of communications services to media firms, fixed and wireless telecommunications operators, data networking providers, and Internet service providers. They also offer commercial satellite communication services to government and military organizations.
Further, the industry participants provide satellite-related consulting and technical services that include the lifecycle of satellite operations and 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 to customers.
Let’s take a look at three major themes in the industry —
• The global satellite communication landscape has gained traction with the wide proliferation of satellite broadband services, arrival of direct-to-home TV offerings and advancement of digital technology. This has boosted demand for commercial and government welfare schemes. Remarkably, wireless backhaul services are generating additional revenues for satellite operators as consumers desire extensive coverage with the expansion of mobile Internet connections. The usage of satellite communication services in IoT and disaster management initiatives in developed regions is expected to drive growth. Significant IoT penetration in military operations in order to boost military intelligence and surveillance is expected to fuel additional demand for superior global satellite communication service.
• Technological advancement in miniaturization, connected technology, robust network environment, low power computing, radio frequency identification and M2M communication are also expected to fuel the satellite communication market. In order to cater to the increased data demand for mobile connectivity, satellite service players have made significant investments in R&D activities to be on par with emerging technologies and keep their product lines updated. Technological advances have led to the convergence of terrestrial mobile phones and satellites. In addition, equipping 5G mobile networks with next-generation satellite capabilities is helping mobile satellite operators to enhance their bottom line. Spurred by the increasing demand for public safety and augmented reality, the prospects of the industry appear promising.
• AI is becoming part of modern warfare as its implementation in satellite communication is set to be a major trend in the coming decade. Of late, nanosatellites are coming into the picture because of their usability. Growing demand for small satellite constellations with enhanced deployment for commercial end users, and easy accessibility and progress in satellite miniaturization are fueling market growth. Small satellite market is anticipated to grow on the back of significant rise in demand from developing economies as high manufacturing costs and continued investments in base stations to manage bigger satellites remain impediments. Key players are adopting numerous strategies such as acquisition, collaboration, product development and business expansion to stay competitive.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Satellite and Communication industry, which has nine constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #112, which places it at the top 44% 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 solid 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 an outcome of positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential. The industry’s earnings estimates for the next year have surged an impressive 178% over the past year.
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 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 over the past year.
The industry has gained 11.8% over this period compared with the S&P 500’s rise of 20.8% and the broader sector’s rally of 28.9%.
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 10.44X compared with the S&P 500’s 11.95X. It is also below the sector’s trailing 12-month EV/EBITDA of 12.29X.
Over the past five years, the industry has traded as high as 16.94X, as low as 2.96X with the median of 9.92X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
Bottom Line
The Spectrum Management and Reallocation for Taxpayers (SMART) Act proposes a $1 billion of incentive payments to entice incumbent satellite companies using the C-Band in the United States to agree to let a significant amount of the spectrum be changed to terrestrial use for 5G services. The SMART Act gives the Federal Communications Commission authority to conduct a public auction of C-band spectrum, and use nearly all proceeds from the auction to bridge the digital divide, enable next-generation public safety services and reduce national debt.
The industry is expected to show robust growth on the back of increasing rate of investments by government organizations worldwide. The demand for small satellites across different geographies is likely to witness an upward trajectory, with North America having the bulk of the market share followed by Asia-Pacific, Europe and Rest of the World. North America is anticipated to maintain its dominance on account of maximum number of small satellites launches by government end users.
Greater market penetration of small satellites into disaster management, evolving satellite applications, development of Global Navigation Satellite System, advancements in 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 likely to witness a high growth rate owing to intensifying R&D activities to develop small satellite constellation for varied applications including navigation, provision of global wireless Internet system and telecommunications.
None of the stocks in the industry currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). We are presenting three stocks with a Zacks Rank #3 (Hold) that are well positioned to grow. You can see the complete list of today’s Zacks #1 Rank stocks here.
Iridium Communications Inc. (IRDM - Free Report) : Based in McLean, VA, Iridium provides mobile voice and data communications services through satellite to businesses, the United States and foreign governments, non-governmental organizations, and consumers worldwide. The stock has surged 49.1% in the past year. The Zacks Consensus Estimate for its current-year earnings has remained stable over the past 60 days. The company topped earnings estimates in each of the trailing four quarters, the beat being 20.8%, on average.
Price and Consensus: IRDM
Intelsat S.A. : Based in Luxembourg City, Intelsat, together with its subsidiaries, provides satellite communications services worldwide. The stock has rallied 40.4% in the past two years. The consensus estimate for its current-year earnings has remained stable over the past 60 days. The company has a long-term earnings growth expectation of 10.2%.
Price and Consensus: I
Maxar Technologies Inc. : Based in Westminster, CO, Maxar provides space technology solutions for commercial and government customers worldwide. The stock has added a whopping 178.7% in the past year. The consensus estimate for its current-year earnings has remained stable in the past seven days.
Price and Consensus: MAXR
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Image: Bigstock
Encouraging Outlook for Satellite and Communication Industry
The Zacks Satellite and Communication industry comprises providers of satellite service operations, broadband satellite technologies and Internet services. The companies offer a range of communications services to media firms, fixed and wireless telecommunications operators, data networking providers, and Internet service providers. They also offer commercial satellite communication services to government and military organizations.
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Further, the industry participants provide satellite-related consulting and technical services that include the lifecycle of satellite operations and 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 to customers.
Let’s take a look at three major themes in the industry —
• The global satellite communication landscape has gained traction with the wide proliferation of satellite broadband services, arrival of direct-to-home TV offerings and advancement of digital technology. This has boosted demand for commercial and government welfare schemes. Remarkably, wireless backhaul services are generating additional revenues for satellite operators as consumers desire extensive coverage with the expansion of mobile Internet connections. The usage of satellite communication services in IoT and disaster management initiatives in developed regions is expected to drive growth. Significant IoT penetration in military operations in order to boost military intelligence and surveillance is expected to fuel additional demand for superior global satellite communication service.
• Technological advancement in miniaturization, connected technology, robust network environment, low power computing, radio frequency identification and M2M communication are also expected to fuel the satellite communication market. In order to cater to the increased data demand for mobile connectivity, satellite service players have made significant investments in R&D activities to be on par with emerging technologies and keep their product lines updated. Technological advances have led to the convergence of terrestrial mobile phones and satellites. In addition, equipping 5G mobile networks with next-generation satellite capabilities is helping mobile satellite operators to enhance their bottom line. Spurred by the increasing demand for public safety and augmented reality, the prospects of the industry appear promising.
• AI is becoming part of modern warfare as its implementation in satellite communication is set to be a major trend in the coming decade. Of late, nanosatellites are coming into the picture because of their usability. Growing demand for small satellite constellations with enhanced deployment for commercial end users, and easy accessibility and progress in satellite miniaturization are fueling market growth. Small satellite market is anticipated to grow on the back of significant rise in demand from developing economies as high manufacturing costs and continued investments in base stations to manage bigger satellites remain impediments. Key players are adopting numerous strategies such as acquisition, collaboration, product development and business expansion to stay competitive.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Satellite and Communication industry, which has nine constituent companies, is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #112, which places it at the top 44% 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 solid 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 an outcome of positive earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential. The industry’s earnings estimates for the next year have surged an impressive 178% over the past year.
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 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 over the past year.
The industry has gained 11.8% over this period compared with the S&P 500’s rise of 20.8% and the broader sector’s rally of 28.9%.
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 10.44X compared with the S&P 500’s 11.95X. It is also below the sector’s trailing 12-month EV/EBITDA of 12.29X.
Over the past five years, the industry has traded as high as 16.94X, as low as 2.96X with the median of 9.92X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
Bottom Line
The Spectrum Management and Reallocation for Taxpayers (SMART) Act proposes a $1 billion of incentive payments to entice incumbent satellite companies using the C-Band in the United States to agree to let a significant amount of the spectrum be changed to terrestrial use for 5G services. The SMART Act gives the Federal Communications Commission authority to conduct a public auction of C-band spectrum, and use nearly all proceeds from the auction to bridge the digital divide, enable next-generation public safety services and reduce national debt.
The industry is expected to show robust growth on the back of increasing rate of investments by government organizations worldwide. The demand for small satellites across different geographies is likely to witness an upward trajectory, with North America having the bulk of the market share followed by Asia-Pacific, Europe and Rest of the World. North America is anticipated to maintain its dominance on account of maximum number of small satellites launches by government end users.
Greater market penetration of small satellites into disaster management, evolving satellite applications, development of Global Navigation Satellite System, advancements in 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 likely to witness a high growth rate owing to intensifying R&D activities to develop small satellite constellation for varied applications including navigation, provision of global wireless Internet system and telecommunications.
None of the stocks in the industry currently carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). We are presenting three stocks with a Zacks Rank #3 (Hold) that are well positioned to grow. You can see the complete list of today’s Zacks #1 Rank stocks here.
Iridium Communications Inc. (IRDM - Free Report) : Based in McLean, VA, Iridium provides mobile voice and data communications services through satellite to businesses, the United States and foreign governments, non-governmental organizations, and consumers worldwide. The stock has surged 49.1% in the past year. The Zacks Consensus Estimate for its current-year earnings has remained stable over the past 60 days. The company topped earnings estimates in each of the trailing four quarters, the beat being 20.8%, on average.
Price and Consensus: IRDM
Intelsat S.A. : Based in Luxembourg City, Intelsat, together with its subsidiaries, provides satellite communications services worldwide. The stock has rallied 40.4% in the past two years. The consensus estimate for its current-year earnings has remained stable over the past 60 days. The company has a long-term earnings growth expectation of 10.2%.
Price and Consensus: I
Maxar Technologies Inc. : Based in Westminster, CO, Maxar provides space technology solutions for commercial and government customers worldwide. The stock has added a whopping 178.7% in the past year. The consensus estimate for its current-year earnings has remained stable in the past seven days.
Price and Consensus: MAXR
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>