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Global macroeconomic challenges, inflation and supply chain dynamics could affect growth prospects of companies within the Zacks Satellite and Communication industry in the near term. However, these companies are well-poised to benefit from a vast proliferation and cheaper access to space technology in the long run. This trend is leading to a diversification in end-market users.
AI, 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 boosting investments by global militaries. Iridium Communications, Globalstar and Eutelsat Group have significant growth potential on global security threats, surging defense budgets and 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, 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 also offer 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 ordinary buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured in an assembly line. Integration and testing have become highly automated. The extent of testing is lowered after prototyping and initial production is completed.
Countries with comprehensive space programs have distinct military, economic and scientific advantages. However, 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. North America has 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 the growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diverse 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 comprehensive product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits from another. High product quality increases brand loyalty and enhances performance in a competitive market. For civil customers, notably 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 (GEO) replacement demand and Low Earth Orbit (LEO) communications programs. Also, personal satellite communications are witnessing strong demand, leading to subscriber growth.
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of the revenues from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The explosion of space-based intelligence, surveillance and reconnaissance and communications is expected to boost government investments in the sector.
However, weakness in global macroeconomic conditions could compel customers to lower spending, which does not bode well for industry participants. Volatile supply chain dynamics and rising inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this particular industry will likely be affected by further interest rate hikes and investor uncertainty amid a broader market slowdown. Many industry participants are likely to find the present investment situation highly challenging.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #179, which places it in the bottom 29% of more than 252 Zacks industries.
The group’s ZacksIndustry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak 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 bottom 50% of the Zacks-ranked industries can be attributed to the negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since Oct 10, 2023, the industry’s earnings estimates for the current year have deteriorated from earnings of 34 cents to a loss of 18 cents.
Before we present a few satellite and communication stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms Sector, S&P 500
In the past year, the Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector.
The industry has lost 15.2% over this period compared with the S&P 500’s increase of 25.4%. The broader sector gained 51.8%.
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 5.97X compared with the S&P 500’s 13.82X. The sector’s trailing 12-month EV/EBITDA stands at 13.16X.
In the past five years, the industry has traded as high as 12.43X and as low as 5.27X, with a median of 7.65X.
3 Stocks to Watch in the Industry
Iridium Communications: Iridium 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's performance is gaining from higher engineering and support revenues (due to increased commercial and government activity) and momentum in commercial business lines. The company aims to tap the growing demand for remotely piloted uncrewed aerial vehicle (UAV) through its Certus 100 services. Iridium expects commercial service revenues to benefit from growth in L-band services.
The company anticipates generating $1 billion in Service revenues annually by 2030. It projects to generate $3 billion in shareholder returns by 2030. However, Iridium expects equipment sales to decline in fourth quarter and 2023 as well. Service revenues are now expected to grow 10% for 2023 compared with the previous guided range of 9-11% increase. Higher research and development costs, stiff competition and a leveraged balance sheet are a concern.
The consensus estimate for its current-year earnings is pegged at a loss of 15 cents, unchanged in the past 30 days.
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries worldwide. Globalstar's products include mobile and fixed satellite telephones, simplex and duplex satellite data modems and flexible service packages. Globalstar serves various sectors like oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation, heavy construction, etc.
The company’s efforts to boost the development of its spectrum and wholesale services bode well. GSAT’s MSS business is likely to gain from the momentum of Commercial IoT. Increasing service revenues, growth in Commercial IoT and improved adjusted EBITDA prompted upward guidance revision. Management now expects total revenues for 2023 to be in the range of $215-$230 million. Earlier, the company had projected revenues to be in the range of $200-$230 million.
The Zacks Consensus Estimate for this Zacks Rank #3 stock’s current-year earnings is pegged at a loss of 1 cent compared with a loss of 14 cents reported in the previous year.
Eutelsat Group: Headquartered in Paris, France, Eutelsat Group is a satellite operator that broadcasts television channels to cable and satellite homes. The company's satellites also serve fixed and mobile telecommunications services, TV contribution markets, corporate networks, and broadband markets for Internet Service Providers and for transport, maritime and in-flight markets. Eutelsat's broadband subsidiary, Skylogic, markets and operates access to high-speed Internet services through teleports that serve enterprises, local communities, government agencies and aid organizations.
The company is gaining from double-digit growth in the Mobile Connectivity segment, which contributed 13% to total revenues in the last reported quarter. The segment revenues were up 44.1% year over year. This is mainly due to the commercialization of the final beam on EUTELSAT QUANTUM for a maritime mobility client. The eight beams of this satellite are now commercialized, just after 18 months of its entry into service.
The segment performance is also being driven by the entry into service of the high-throughput satellite, EUTELSAT 10B. It has significant pre-commitments and recent deals, including the multi-year, multi-million contract with Marlink. The company expects this segment to deliver double-digit growth for the full year owing to steady demand for both GEO and LEO-based connectivity solutions.
EUTLF carries a Zacks Rank #3. The Zacks Consensus Estimate for the stock’s current-year earnings is pegged at earnings of 98 cents per share, unchanged in the past 60 days.
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Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch/ Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Iridium Communications, Globalstar and Eutelsat Group
For Immediate Release
Chicago, IL – December 22, 2023 – Today, Zacks Equity Research discusses Iridium Communications (IRDM - Free Report) , Globalstar (GSAT - Free Report) and Eutelsat Group (EUTLF - Free Report) .
Industry: Satellite & Communications
Link: https://www.zacks.com/commentary/2200928/3-stocks-to-watch-from-the-satellite-and-communication-industry
Global macroeconomic challenges, inflation and supply chain dynamics could affect growth prospects of companies within the Zacks Satellite and Communication industry in the near term. However, these companies are well-poised to benefit from a vast proliferation and cheaper access to space technology in the long run. This trend is leading to a diversification in end-market users.
AI, 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 boosting investments by global militaries. Iridium Communications, Globalstar and Eutelsat Group have significant growth potential on global security threats, surging defense budgets and 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, 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 also offer 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 ordinary buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted and several satellites are manufactured in an assembly line. Integration and testing have become highly automated. The extent of testing is lowered after prototyping and initial production is completed.
Countries with comprehensive space programs have distinct military, economic and scientific advantages. However, 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. North America has 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 the growing international defense and intelligence demand.
Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diverse 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 comprehensive product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits from another. High product quality increases brand loyalty and enhances performance in a competitive market. For civil customers, notably 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 (GEO) replacement demand and Low Earth Orbit (LEO) communications programs. Also, personal satellite communications are witnessing strong demand, leading to subscriber growth.
Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of the revenues from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The explosion of space-based intelligence, surveillance and reconnaissance and communications is expected to boost government investments in the sector.
However, weakness in global macroeconomic conditions could compel customers to lower spending, which does not bode well for industry participants. Volatile supply chain dynamics and rising inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this particular industry will likely be affected by further interest rate hikes and investor uncertainty amid a broader market slowdown. Many industry participants are likely to find the present investment situation highly challenging.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #179, which places it in the bottom 29% of more than 252 Zacks industries.
The group’s ZacksIndustry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bleak 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 bottom 50% of the Zacks-ranked industries can be attributed to the negative earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since Oct 10, 2023, the industry’s earnings estimates for the current year have deteriorated from earnings of 34 cents to a loss of 18 cents.
Before we present a few satellite and communication stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms Sector, S&P 500
In the past year, the Zacks Satellite and Communication industry underperformed the S&P 500 composite and the broader Zacks Computer and Technology sector.
The industry has lost 15.2% over this period compared with the S&P 500’s increase of 25.4%. The broader sector gained 51.8%.
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 5.97X compared with the S&P 500’s 13.82X. The sector’s trailing 12-month EV/EBITDA stands at 13.16X.
In the past five years, the industry has traded as high as 12.43X and as low as 5.27X, with a median of 7.65X.
3 Stocks to Watch in the Industry
Iridium Communications: Iridium 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's performance is gaining from higher engineering and support revenues (due to increased commercial and government activity) and momentum in commercial business lines. The company aims to tap the growing demand for remotely piloted uncrewed aerial vehicle (UAV) through its Certus 100 services. Iridium expects commercial service revenues to benefit from growth in L-band services.
The company anticipates generating $1 billion in Service revenues annually by 2030. It projects to generate $3 billion in shareholder returns by 2030. However, Iridium expects equipment sales to decline in fourth quarter and 2023 as well. Service revenues are now expected to grow 10% for 2023 compared with the previous guided range of 9-11% increase. Higher research and development costs, stiff competition and a leveraged balance sheet are a concern.
Iridium carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The consensus estimate for its current-year earnings is pegged at a loss of 15 cents, unchanged in the past 30 days.
Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries worldwide. Globalstar's products include mobile and fixed satellite telephones, simplex and duplex satellite data modems and flexible service packages. Globalstar serves various sectors like oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation, heavy construction, etc.
The company’s efforts to boost the development of its spectrum and wholesale services bode well. GSAT’s MSS business is likely to gain from the momentum of Commercial IoT. Increasing service revenues, growth in Commercial IoT and improved adjusted EBITDA prompted upward guidance revision. Management now expects total revenues for 2023 to be in the range of $215-$230 million. Earlier, the company had projected revenues to be in the range of $200-$230 million.
The Zacks Consensus Estimate for this Zacks Rank #3 stock’s current-year earnings is pegged at a loss of 1 cent compared with a loss of 14 cents reported in the previous year.
Eutelsat Group: Headquartered in Paris, France, Eutelsat Group is a satellite operator that broadcasts television channels to cable and satellite homes. The company's satellites also serve fixed and mobile telecommunications services, TV contribution markets, corporate networks, and broadband markets for Internet Service Providers and for transport, maritime and in-flight markets. Eutelsat's broadband subsidiary, Skylogic, markets and operates access to high-speed Internet services through teleports that serve enterprises, local communities, government agencies and aid organizations.
The company is gaining from double-digit growth in the Mobile Connectivity segment, which contributed 13% to total revenues in the last reported quarter. The segment revenues were up 44.1% year over year. This is mainly due to the commercialization of the final beam on EUTELSAT QUANTUM for a maritime mobility client. The eight beams of this satellite are now commercialized, just after 18 months of its entry into service.
The segment performance is also being driven by the entry into service of the high-throughput satellite, EUTELSAT 10B. It has significant pre-commitments and recent deals, including the multi-year, multi-million contract with Marlink. The company expects this segment to deliver double-digit growth for the full year owing to steady demand for both GEO and LEO-based connectivity solutions.
EUTLF carries a Zacks Rank #3. The Zacks Consensus Estimate for the stock’s current-year earnings is pegged at earnings of 98 cents per share, unchanged in the past 60 days.
Why Haven’t You Looked at Zacks' Top Stocks?
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.