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Zacks Industry Outlook Highlights EchoStar Corporation, Iridium Communications and Globalstar

For Immediate Release

Chicago, IL – June 5, 2024 – Today, Zacks Equity Research discusses EchoStar Corporation SATS, Iridium Communications IRDM and Globalstar GSAT.

Industry: Satellite & Communications

Link: https://www.zacks.com/commentary/2283138/3-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. 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.

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Geopolitical competition in space as a contested domain is boosting investments by global militaries. EchoStar Corporation, Iridium Communications and Globalstar have significant growth potential on global security threats, surging defense budgets and demand for high-quality imagery and value-added services. However, global macroeconomic challenges, inflation and supply chain dynamics could affect growth prospects of these companies.

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.

These companies 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 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 inflation could lead to higher costs and increased lead time, which are major concerns. The inflow of capital investment to this industry will likely be affected if there are more interest rate hikes. Also, investor uncertainty amid a broader market slowdown is a hurdle.

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 #64, which places it in the top 26% of more than 249 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 lost 36.5% over this period against the S&P 500's increase of 23.5%. The broader sector has moved up 33.5%.

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 7.18X compared with the S&P 500's 14.59X. The sector's trailing 12-month EV/EBITDA stands at 14.33X.

In the past five years, the industry has traded as high as 25.46X and as low as 4.43X, with a median of 7.68X.

3 Stocks to Watch in the Industry

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 capacity services bode well. GSAT recently initiated a contract with a government services company to leverage its satellite network for vital applications. GSAT further noted that the proof-of-concept (POC) phase is ongoing.

Moreover, assuming a positive conclusion of the POC, the agreement will have a five-year term and annual minimum revenue commitments increasing up to $20 million during the fifth year. The agreement also has the potential for significant upside due to the agreement's revenue share terms.

Momentum in XCOM RAN systems also bodes well. The first commercial units of XCOM RAN were shipped in April 2024. Prior to that, it won its first order for delivery of multiple XCOM RAN systems to support warehouse automation for a major U.S. retailer.

In the last reported quarter, Commercial IoT service revenues increased 24% year over year due to increases in ARPU and the subscriber base. Management expects total revenues for 2024 to be in the range of $225-$250 million.

GSAT carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Current-year earnings are pegged at a loss of 2 cents compared with a loss of 1 cent reported in the previous year.

Iridium Communications: Iridium is a satellite communications company that offers dedicated commercial global voice and data communications services to businesses and governments in the United States and globally.

Iridium's performance is gaining from higher engineering and support revenues due to a rise in activity with the U.S. government. Going ahead, the company expects engineering and support revenue to increase in 2024 owing to ongoing work on the Space Development Agency contract. The acquisition of Satelles will expand the company's footprint in the satellite-based time synchronization and location services market. It continues to expect $3 billion in shareholder returns by 2030.

Weakness in the Equipment business unit is a headwind. The company expects 2024 equipment sales to revert to pre-pandemic levels as the channel absorbs safety stock that was accumulated during the pandemic. Rising research and development costs to support the Stardust initiative might hamper margins. Stiff competition and leveraged balance sheets are a concern.

Iridium carries a Zacks Rank #3 (Hold). The consensus estimate for its current-year earnings is pegged at 74 cents, up 15.6% in the past 90 days.

EchoStar Corp.: Headquartered in Englewood, CO, EchoStar 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.

In January 2024, SATS announced that it acquired DISH network as a wholly-owned subsidiary. The merger between the two companies closed on Dec 31, 2023. The acquisition involved the merger of a wholly-owned subsidiary of EchoStar, led by Charlie Ergen, with DISH Network.

In the last reported quarter, EchoStar's revenues totaled $4.01 billion, missing the Zacks Consensus Estimate by 1.32%. SATS registered a year over year top-line contraction of 8.6%. Net subscriber losses in Pay-TV, Retail Wireless and Broadband and satellite services led to the downfall. However, net sales from 5G Network Deployment increased to $29.5 million from $18.9 million a year ago.

SATS carries a Zacks Rank #3. The Zacks Consensus Estimate for the stock's current-year earnings is pegged at a loss of $1.50 per share, unchanged in the past seven days. The company had reported earnings of $1.34 in the previous year.

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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.

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