3 Stocks to Watch From the Satellite and Communication Industry
Companies within the Zacks Satellite and Communication industry 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. Artificial Intelligence, 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 IRDM, Globalstar GSAT and EchoStar SATS have significant growth potential on global security threats, surging defense budgets and demand for high-quality imagery and value-added services. However, volatile global macroeconomic conditions, inflation and supply chain dynamics could affect the growth prospects of the participants in the near term.
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 replacement demand and Low Earth Orbit 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 Bright Prospects
The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #108, which places it in the top 43% of more than 251 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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.
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 gained 2.2% over this period compared with the S&P 500’s increase of 15.1%. The broader sector gained 26.3%.
One-Year Price Performance
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 6.49X compared with the S&P 500’s 12.74X. The sector’s trailing 12-month EV/EBITDA stands at 11.78X.
In the past five years, the industry has traded as high as 14.63X and as low as 5.71X, with a median of 7.70X, as the chart below shows.
Enterprise Value-to-EBITDA Ratio (Past Five Years)
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 driven by higher engineering and support revenues and continued momentum in commercial business lines. The Engineering and support service segment is gaining due to increased commercial and government activity. Iridium expects commercial service revenues to benefit from growth in L-band services. The company aims to tap the growing demand for remotely piloted uncrewed aerial vehicle (UAV) through its Certus 100 services. The company aims to tap the consumer-oriented satellite segment by launching new direct-to-device capabilities and collaborating with Qualcomm for satellite messaging and smartphone emergency services. Iridium expects the voice and data business to gain from the increasing demand for newer services like Push-to-Talk and Iridium GO! Services.
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 10 cents, unchanged in the past 30 days. The stock has gained 3% in the past year.
Price and Consensus: IRDM
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 Commercial IoT momentum. The launch of a new two-way device platform and services is expected to drive the Service segment’s revenues. Earlier in the year, Globalstar also announced a strategic agreement with Qualcomm. As part of the partnership, Globalstar’s Band 53 has been rolled out across Qualcomm’s RF ecosystem and sales network, which includes the chipset and the front end.
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.
Price and Consensus: GSAT
EchoStar Corporation: Headquartered in Englewood, CO, EchoStar Corporation is a global provider of satellite service operations, video delivery services, broadband satellite technologies and broadband internet services.
The company also offers innovative network technologies, managed services, and various communications solutions for aeronautical, enterprise and government customers. It operates through its Hughes Network Systems and EchoStar Satellite Services business segment.
In August 2023, EchoStar announced an all-stock merger (at a fixed exchange ratio) with DISH Network Corporation. The new company will boast DISH’s satellite technology, 5G network, streaming services and EchoStar's satellite communications solutions’ portfolio. It will be able to deliver a wide range of communication and content distribution capabilities to customers. Subject to customary and regulatory approvals, the transaction is expected to be concluded by year-end.
EchoStar carries a Zacks Rank #3. The Zacks Consensus Estimate for the stock’s current-year earnings is pegged at earnings of $1.06 per share, unchanged in the past 60 days.
Price and Consensus: SATS
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EchoStar Corporation (SATS) : Free Stock Analysis Report
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