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Viasat (VSAT) Commercial Service Set for a February Launch

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ViaSat Inc. (VSAT - Free Report) announced that it has commenced beta service on the ViaSat-2 satellite, also affirming its plans for full commercial service launch next month. ViaSat-2, touted to have twice the bandwidth and seven times more broadband coverage, is a massive improvement over ViaSat-1 and has immense prospects.

The above-mentioned service is anticipated to radically increase speeds, cut costs and expand the reach of broadband services across North America, Central America, the Caribbean, and a portion of northern South America as well. The ViaSat-2 satellite system is also expected to broaden its footprint in order to cover the primary aeronautical and maritime routes across the Atlantic Ocean between Europe and North America.

Viasat has conducted several performance tests on the ViaSat-2 satellite and end-to-end network, and has demonstrated downstream speeds of more than 100 Mbps to production consumer terminals. Successful alpha testing demonstrates that the satellite ground network and other networking technologies are actually performing better than initially expected. Per initial tests, the company anticipates to grow its distribution channel significantly.

ViaSat will continue the testing during the beta service period, in light of the fact that Boeing has identified an in-orbit antenna issue, which is causing some spot beams to behave differently than anticipated. However, ViaSat does not expect this to impact the coverage area of the satellite, or materially affect the planned services and the estimated economic results from ViaSat-2.

The company will release more details on the ViaSat-2 service launch plans in its next earnings call, early next month.

ViaSat has numerous growth drivers in place, at present. The company recorded stellar growth in government business, which was somewhat offset by contraction in the Commercial Networks revenues. Steady growth in in-flight connectivity services, mobile broadband, consumer ARPU gains and cost-reduction initiatives are proving conducive to the company’s growth.

ViaSat’s stock has appreciated 18.7% over the past six months, ahead of the industry’s average gain of 6.3%.

However, ViaSat’s recent earnings have been hurt badly by escalating research and development costs, and ramped-up expenses, ahead of offering subscribers service with its new high-speed satellite. The primary drivers of the high operating expenses are the ViaSat-3 payload, pre-flight development and testing, and commercial in-flight connectivity, STCs and line-fit activity. This indicates that we can see more pressure on profits in the upcoming quarters.

Also, stiff competition in the industry proves to be a major growth deterrent for the company, particularly for its satellite services segment. The satellite services business is also highly affected by seasonality of demand due to traditional retail-selling periods.

Overall, while we acknowledge that this Zacks Rank #4 (Sell) company has a robust foothold in numerous markets and is enjoying strong growth momentum, we feel its earnings are set up for more pressure in the quarters ahead.

Key Picks

Some better-ranked stocks in the broader space include Comtech Telecommunications Corp. (CMTL - Free Report) , Applied Materials, Inc. (AMAT - Free Report) and NVIDIA Corporation (NVDA - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

With four back-to-back, robust earnings beats, Comtech has a striking average positive surprise of 88.7%.

Applied Materials has recorded an average positive surprise of 2.8% over the trailing four quarters, beating estimates all through.

NVIDIA has an impressive earnings surprise history for the four preceding quarters, beating estimates each time, with an average positive surprise of 33.5%.

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