Share price of Gogo Inc. (GOGO - Free Report) rallied to a new 52-week high of $14.28, eventually closing a tad lower at $14.23 on Sep 5. Notably, shares have gained 54.3% year to date, substantially outperforming the industry’s 10.4% decline. The outperformance can be attributed to high adoption rate of the company’s 2Ku technology.
We note that the company has beaten the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive surprise of 4.62%. Long term earnings growth is currently pegged at 14%.
Moreover, the company’s revenues have beaten the Zacks Consensus Estimate in the past four quarters.
Gogo reaffirmed its outlook for 2017. Revenues are projected to be in the range of $670–$695 million. Further, the company anticipates 2Ku installations of 450–550 aircraft, including approximately 150 in Commercial Aviation – Rest of World (CA-ROW).
What’s Backing the Rally?
Gogo’s Business Aviation (BA) business has been instrumental in driving the company’s top line. In the last reported quarter, BA service revenues grew 30% year over year to $42.2 million.
Gogo’s 2Ku service has been a key growth driver. Lower bandwidth cost structure coupled with faster installation rate is helping the company to gain traction in the market. Further, the company in its last conference call stated that it launched 2Ku service on five new airlines in the quarter and plans to accelerate 2Ku installation post Labor Day. Reportedly, last month, the company’s 2Ku inflight connectivity solution was selected by Alaska Airlines for its entire Boeing and Airbus Fleet.
Recently, the company’s onboard Internet connectivity services got a major push with the Federal Aviation Administration granting Supplemental Type Certification (STC) and Parts Manufacturer Approval (PMA) for the 4G dual-directional antennas that are to be used with Gogo AVANCE L5 – its new Wi-Fi inflight system. The ability of the company to achieve its commitment of launching the 4G service in mid-2017 is impressive in our view.
However, Gogo faces stiff competition from peers like ViaSat Inc. (VSAT - Free Report) . Higher operating expenses due to increased investment in the CA-ROW segment pose concerns.
Zacks Rank & Stocks to Consider
Currently, Gogo carries a Zacks Rank #4 (Sell).
Better-ranked stocks in the broader technology sector include Micron Technology (MU - Free Report) and Applied Materials (AMAT - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for Micron Technology and Applied Materials is currently projected to be 10% and 17.11%, respectively.
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