Sky’s the Limit: Satellite Markets Set to Soar
How AI and the New Cold War will funnel billions into this market ...
If you follow the best storylines, you can find the best stocks, and when those storylines intersect, you amplify your profit potential.
Two of the intersecting storylines we’re following are the AI Era and the New Cold War.
You need satellites for cellular coverage in remote areas where cell towers are far and few between, and government and military agencies need satellites for real-time intel, secure communications, navigation, and missile detection.
The global mobile satellite services market size is still relatively small. It was valued at $5.6 billion in 2023 and is expected to reach $9.5 billion by 2031 for a meager compound annual growth rate (CAGR) of 6.9%.
In 2023, CCS Insight had a more bullish forecast that the satellite smartphone services market would reach $18 billion by 2027. Still relatively small, but this all may turn out to be conservative, as the AI Era can supercharge the need to get more satellites into space, which will help to easily exceed market forecasts.
The military satellite market is larger and expected to climb in value from $31.97 billion in 2024 to $53.85 billion in 2029, for a 10.99% CAGR.
And the global internet satellite market is even bigger. In addition to smartphone satellites, internet satellites are also important in the AI Era. This was a market valued at $5.6 billion in 2023 — just like the mobile satellite services market — but is forecasted to reach $58.1 billion by 2032, for a whopping CAGR of 33.90%.
Although a private company, Elon Musk’s Space-X satellite operator Starlink had the largest fleet of satellites in orbit in 2023 and now has nearly doubled that total with over 6,000.
These satellites provide internet connectivity so things like John Deere tractors can autonomously navigate corn fields and self-driving cars “see” what’s in front of them on roadways.
You’ll see that the companies we’re about to share are out of favor thus far in 2024 … but because of the importance those companies will play in the AI Era and the New Cold War … you’ll want to know about them now to be ahead of the crowd.
🟦Company No. 1: Iridium Communications Inc. IRDM 0.00%↑
Dividend Yield: 1.91%
Five-Year Earnings Growth Projection Per Year: 139.33%
Current Price (Oct. 14, 2024): $29.73
One-Year Price Target: $40.60
Potential One-Year Gain: 36.56%
Iridium Briefing: Iridium offers satellite phones, Internet of Things (IoT) terminals (reliable two-way satellite communication) and mobile connectivity services that are used in sectors like emergency response, aviation, government, and maritime. Its network uses something called L-band frequencies, which are considered more weather-resilient than other satellite networks. The company just released an upbeat third-quarter report, with revenue increasing by 8% to $212.77 million, service revenue growing 5%, and total billable subscribers increasing by 11%. It also approved an additional $500 million in share buybacks, with Iridium’s total buyback approval sitting at $1.5 billion since 2021.
🟦Company No. 2: Viasat Inc. VSAT 0.00%↑
Dividend Yield: NA
Five-Year Earnings Growth Projection Per Year: -30.65%
Current Price (Oct. 14, 2024): $10.79
One-Year Price Target: $28.60
Potential One-Year Gain: 165.06%
Viasat Briefing: Through its network of satellites, Viasat provides connectivity services and high-speed internet to the business, residential, military, and government markets. Some of it’s more well-known customers include: JetBlue Airways Corp. JBLU 0.00%↑, Delta Airlines Inc. DAL 0.00%↑, and the Department of Defense.
Shares have been crushed this year - down 61% - and the company is not profitable.
But there’s an interesting “special situation” element to this company, as it has a bit of a misunderstood business model and a potential turnaround afoot, according to the Los Angeles-based Cove Street Cap.
Check out what they said in their most recent “Small Cap Value Fund” investor letter:
“Viasat, Inc. (NASDAQ:VSAT) has no friends. We are in the limbo of waiting for the launch of two satellites, with essentially $1 billion of cost sitting around in warehouses. We expect those satellites to be in service mid-25 and late-25. There is no growth until then, as the company has slowly abandoned the rural broadband market to allocate limited capacity to their commercial markets. There is tremendous “not being monetized” value in the Viasat/Inmarsat combination given commercial and defense opportunities in space in the decades ahead, but a pair of satellite failures has clearly given Starlink and eventually Kuiper a complete 4 year “gimme” to develop as formidable competitors. Irrelevant at current stock price. The defense business is arguably worth 2x the current market cap.”
So the company should have $1 billion worth of satellites that are currently sitting idle in service by the end of 2025 and Cove Street sees the defense business alone being worth double Viasat’s market cap.
🟦Company No. 3: Gilat Satellite Networks Ltd. GILT 0.00%↑
Dividend Yield: NA
Five-Year Earnings Growth Projection Per Year: 10%
Current Price (Oct. 14, 2024): $4.95
One-Year Price Target: $7.90
Potential One-Year Gain: 59.59%
Gilat Briefing: Much like the other companies featured thus far, Gilat provides satellite services for enterprises, defense and government sectors. It also offers rural connectivity and in-flight connectivity solutions.
Since September, the company has won a slew of contracts:
For 2024, the Israel-based company expects revenue to fall between $305 and $325 million and GAAP operating income between $15 and $19 million.
🟦Company No. 4: Globalstar Inc. GSAT 0.00%↑
Dividend Yield: NA
Five-Year Earnings Growth Projection Per Year: 15%
Current Price (Oct. 14, 2024): $1.12
One-Year Price Target: $3.97
Potential One-Year Gain: 254%
Globalstar Briefing: Apple Inc. AAPL 0.00%↑ works with Globalstar, which has 24 satellites in orbit and is expected to add 17 more in 2025 as part of its coverage-boosting strategy.
Apple also made a $450 million investment in U.S. infrastructure for emergency SOS capabilities in 2022, with the majority of the money funneled to Globalstar.
Outside of Apple, the satellite company serves:
One of its most interesting applications is its commercial IoT services, which offers monitoring and tracking of assets in remote locations.
Assets like:
Machinery
Equipment
Livestock
Oil
And gas.
Final Thoughts
The companies we covered today are:
Iridium Communications Inc. IRDM 0.00%↑
Viasat Inc. VSAT 0.00%↑
Gilat Satellite Networks Ltd. GILT 0.00%↑
And Globalstar Inc. GSAT 0.00%↑.
The satellite market is still in its early stages, evident from company shares being down between 19% and 61%.
But that doesn’t diminish the growing need for satellites to boost cellular connections around the world and to make sure self-driving cars are always connected to navigate the roads.
Satellites will also play a crucial role in national defense in the New Cold War.
On Aug. 6, China launched 18 satellites as a part of a 14,000-launch plan to beam broadband internet into homes and rival Space-X. “The launch comes as China ramps up its commercial space sector as part of Bejing’s broader bid to cement its place as a dominant power in outer space,” CNN Senior China Writer Simone McCarthy wrote in an Aug. 9 report. And the think tank The Australian Strategic Policy Institute believes other countries using China’s satellites for broadband access could be pressured into censoring content that’s critical of China.
At first glance, the sub-$10 dollar share prices (Viasat is slightly above $10 as of this writing) may seem the most compelling because they look “cheap,” and analyst one-year price targets make these companies like especially enticing, like with Globalstar (254% upside potential from price targets).
Viasat is also one of the most interesting with its special-situation nature.
But the least flashy on this list is one of the better choices to start your own investing research on: Iridium Communications.
The reasons:
✅Iridium has a massive projected five-year annual earnings growth rate of nearly 140%.
✅Iridium has stability through major customers like Caterpillar Inc. CAT 0.00%↑, Honeywell International Inc. HON 0.00%↑, and Garmin Ltd. GRMN 0.00%↑.
✅Albeit on the smaller side, it pays a dividend of 56 cents (yield of 1.91%) for income generation.
✅And it has that additional $500 million buyback it just announced.
If you’re considering investing in Iridium, follow Chief Stock Picker Bill Patalon’s “Accumulate Strategy,” where you’ll buy shares on pullbacks or have a regular investment schedule where you’re buying more shares.
That way, you can lower your total share cost and won’t have to worry about having bought in at just the highs of the market.
Take care,
adjacent is $PL which may be of interest.