What Makes Viasat (VSAT) an Enticing Investment Option Now
Earnings estimates for the current and next fiscal for Viasat Inc. VSAT have surged 140% and 461.5%, respectively, over the past year, making it one of the best performers in the Zacks Wireless Equipment industry. It has a long-term earnings growth expectation of 15.8%. With healthy fundamentals, this Zacks Rank #2 (Buy) stock appears to be a solid investment option for investors at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Growth Drivers
Viasat enjoys a leading position in the satellite and wireless communications market. With the rapid proliferation of the smartphone market and usage of mobile broadband, the user demand for coverage speed and quality has increased, which in turn is fueling the demand for network tuning and optimization to maintain high data traffic. The company attracts millions of U.S. consumers and enterprises with its high-quality broadband service.
Encouragingly, Viasat’s blue-chip customer base, which comprises the U.S. Department of Defense, civil agencies, allied foreign governments, satellite network integrators, as well as large communications service providers and enterprises, adds to its strength.
Its Satellite Services business is progressing well with key metrics, including ARPU (average revenue per user) and revenues, showing impressive growth. ARPU is growing on the back of a solid retail distribution network, which accounts for a rising proportion of high-value and high-bandwidth subscriber base. Furthermore, the growing adoption of in-flight Wi-Fi services in commercial aircraft is proving conducive to business growth.
Viasat’s impressive bandwidth productivity sets it apart from conventional and lower-yield satellite providers that run on incumbent business models. It has a competitive advantage in bandwidth economics, global coverage, flexibility and bandwidth allocation, which makes it believe that mobile broadband will act as a profit churner with a significant improvement in in-flight connectivity (IFC) revenues.
In addition, the company is ramping up investments in the development of its revolutionary ViaSat-3 broadband communications platform, which will boast nearly 10 times the bandwidth capacity of ViaSat-2. These satellites will be capable of covering one-third of the world, including all Americas. The second ViaSat-3 will cover Europe, the Middle East and Africa region. The ViaSat-3 platform will help to form a global broadband network with sufficient network capacity to allow better consumer choices with an affordable, high-quality, high-speed Internet and video streaming service.
In a nutshell, Viasat has garnered enough economics of scale and scope to serve vast emerging markets in South America, Africa, the Middle East and Western Asia. Hence, momentous market traction of ViaSat-1 and ViaSat-2 satellites, coupled with strategically planned ViaSat-3 satellites, are likely to provide the company with a solid competitive edge over its peers, thereby bolstering growth in the long run.
Viasat has reiterated its guidance for fiscal 2024 and fiscal 2025. With the realization of synergistic benefits from the successful integration of Inmarsat over the next fiscal year, the company expects to reach the inflection point of sustainable positive free cash flow in the first half of 2025 rather than the second half, as anticipated earlier.
In fiscal 2025, Viasat expects to record synergies to the tune of $80 million in annual operating expenses and around $110 million in annual capital expenditures from the Inmarsat buyout. The company will fully realize these benefits in fiscal 2025, contrary to earlier expectations of a three-year window.
Other Key Picks
Arista Networks, Inc. ANET, carrying a Zacks Rank #2, is likely to benefit from strong momentum and diversification across its top verticals and product lines. The company has a software-driven, data-centric approach to help customers build their cloud architecture and enhance their cloud experience. Arista has a long-term earnings growth expectation of 19.8% and delivered an earnings surprise of 12%, on average, in the trailing four quarters.
It holds a leadership position in 100-gigabit Ethernet switching share in port for the high-speed datacenter segment. Arista is increasingly gaining market traction in 200- and 400-gig high-performance switching products and remains well-positioned for healthy growth in data-driven cloud networking business with proactive platforms and predictive operations.
United States Cellular Corporation USM, sporting a Zacks Rank #1, is the fourth largest full-service wireless carrier in the United States. The company provides a range of wireless products and services, and a high-quality network to increase the competitiveness of local businesses and improve the efficiency of government operations.
U.S. Cellular has taken concrete steps to accelerate subscriber additions and improve churn management. The company aims to offer the best wireless experience to customers by providing superior quality network and national coverage. It is well-positioned to support the investment required for network enhancements, including the deployment of 5G technology. The company is well-positioned for continued demand for broadband.
Comtech Telecommunications Corp. CMTL, carrying a Zacks Rank #2, is another solid pick. Headquartered in Melville, NY, the company is a leading global provider of next-generation 911 emergency systems and secure wireless communications technologies to commercial and government customers.
Comtech’s key satellite earth station modems incorporate forward error correction and bandwidth compression technologies, which enable its customers to optimize their satellite networks by either reducing their satellite transponder lease costs or increasing data.
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