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Satellite and Communication Industry's Outlook Appears Bright

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The Zacks Satellite and Communication industry comprises providers of satellite service operations, broadband satellite technologies and Internet services. These companies offer an array 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-related 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.

Let’s take a look at the three major industry themes.

•    The global satellite communication landscape gained traction with the proliferation of satellite broadband services, direct-to-home TV offerings and advances in digital technology. This boosted the demand for commercial and government welfare schemes. Wireless backhaul services are generating additional revenues for satellite operators as consumers require 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 likely to drive growth. Significant IoT penetration in military operations to enhance intelligence and surveillance will increase demand for cutting-edge satellite communication services.

•    Developments in miniaturization, connected technology, robust network environment, low power computing, radio frequency identification and M2M communication are expected to promote the satellite communication market. To cater to the growing data demand for mobile connectivity, satellite service players have made major investments in R&D to stay updated with emerging technologies. Technological improvements have led to the convergence of terrestrial mobile phones and satellites. Also, equipping 5G mobile networks with next-generation satellite capabilities is helping mobile satellite operators to expand the bottom line. Spurred by increasing demand for public safety and augmented reality, the prospects of the industry look promising.

•    AI and automation are becoming part of modern warfare as their implementations in satellite communication are set to be an overarching trend. 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. A small satellite market is anticipated to develop on the back of significant rise in demand from developing economies as high manufacturing costs and investment in base stations to manage bigger satellites remain impediments. Key players are adopting 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 #90, which places it at the top 36% 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 solid 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.

The industry’s positioning in the top 50% of the Zacks-ranked industries is an outcome of a 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 current year and the next have increased as much as 300% and 66.7%, respectively, in the past 40 days.

Before we present a few satellite and communication stocks that are well placed to outperform the market based on a healthy 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 in the past year.

The industry has gained 5.1% over this period compared with the S&P 500’s rise of 11.3% and the broader sector’s rally of 25.2%.

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 8.78X compared with the S&P 500’s 11.88X. It is also below the sector’s trailing 12-month EV/EBITDA of 12.44X.

In the past five years, the industry has traded as high as 22.17X, as low as 5.20X with the median of 15.44X, 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 an incentive payment for satellite companies using the C-Band in the United States 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 the C-band spectrum and use almost all proceeds from the auction to bridge the digital gap, enable next-generation public safety services as well as reduce the national debt.

The industry should see growth on the back of the increasing rate of investments by government organizations around the world. 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 the Rest of the World. North America is anticipated to maintain its dominance on account of the maximum number of small satellite launches by government end-users.

Greater market penetration of small satellites into disaster management, evolving satellite applications, development of Global Navigation Satellite System, progresses in satellite structure and an increase in low-cost launching sites for small launch vehicles are expected to open up 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 diverse applications, including navigation, provision of the global wireless Internet system and telecommunications.

None of the stocks in the industry currently sport a Zacks Rank #1 (Strong Buy). So, we are presenting one stock carrying a Zacks Rank #2 (Buy) that investors may keep on their radar. You can see the complete list of today’s Zacks #1 Rank stocks here.

Maxar Technologies Inc. : Headquartered in Westminster, CO, Maxar is a leading provider of solutions in Earth Intelligence and Space Infrastructure. The stock has skyrocketed 175.9% in the past year. The Zacks Consensus Estimate for its current-year earnings has been revised 13.2% upward in the past 60 days.

Price and Consensus: MAXR



We are also presenting two stocks with a Zacks Rank #3 (Hold) that are well positioned to grow.

Iridium Communications Inc. (IRDM - Free Report) : Based in McLean, VA, Iridium provides mobile voice and data communications products and services. The stock has returned 15.6% in the past year. The consensus estimate for its current-year earnings has remained stable in the past 30 days. The company has a trailing four-quarter positive earnings surprise of 24.2%, on average.

Price and Consensus: IRDM



The Liberty SiriusXM Group (LSXMK - Free Report) : Based in Englewood, CO, The Liberty SiriusXM Group is a subsidiary of Liberty Media Corporation. The company, through its subsidiary, Sirius XM Holdings Inc., transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels in the United States and Canada. The stock has added 2.1% in the past year.

The company topped earnings estimates twice in the last four quarters and missed the same in the remaining two quarters. It has a trailing four-quarter positive earnings surprise of 4.4%, on average. The consensus estimate for its current-year earnings has remained stable in the past 30 days. The company has a long-term earnings growth expectation of 12.7% compared with 11.9% of the industry.

Price and Consensus: LSXMK



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