ViaSat, Inc. (NASDAQ: VSAT) is a pioneer in communication technology products and services, including high-speed broadband and advanced communication products. The company reports its revenue under three segments namely, 1) Satellite Segment, which provides satellite-based high-speed broadband products and services to residential customers, enterprises, commercial airlines, etc. 2) Commercial Networks Segment, which develops and provides advanced satellite and wireless broadband platforms, networking equipment and advanced microwave solutions, and 3) Government Systems Segment provides worldwide mobile broadband services to military and government customers. As of May 07th, 2021, VSAT’s market capitalization stood at USD 3.39 billion.
Gained 100% stake in European JV: On April 30th, 2021, the company acquired an additional 51% stake of Euro Broadband Infrastructure Sarl (EBI), a provider of wholesale broadband services. The company now has full control over the KA-SAT satellite and its related ground operations. It wants to grow its European wireless business and to introduce its new services in Europe. This will help it scale its operations and grow its abilities in Europe.
Awarded USD 50.8 million Air Force contract: On February 2nd, 2021, the company received USD 50.8 million from Air Force Research Laboratory to develop a wide range of space systems. Under the seven-year contract, VSAT would receive “task orders” for specific projects in the design and development of “prototype space systems”.
Q3FY21 Results: The company reported a slight decline of 3.32% in net revenue to USD 1.66 billion in the first nine months of FY21 (ended December 31st, 2020) as compared to USD 1.71 billion in the first nine months of FY20. This was due to a 7.75% decline in revenues from the Government Systems segment to USD 785.54 million in the first nine months of FY21 as compared to USD 851.54 in the first nine months of FY20. The company reported a steep increase of 90% in free cash flow from operations to USD 557.37 million in the first nine months of FY21 as compared to USD 293.36 million in the first nine months of FY20.
Key Risks: The company’s revenue from the U.S. Government contributes 30%, 26%, and 31% of the total revenues for the FY20, FY19, and FY18, respectively. The U.S. Government alone contributed 35% and 32% of the total billed accounts receivable for the FY20 and FY19, respectively. Any loss of business from the U.S. government might result in a considerable decline in revenues for the company.
Outlook: The company is concentrating on the launch of the ViaSat-3 (Americas) satellite. It is expecting record adjusted EBITDA and operating cash flows in FY21. The company is expecting temporary near-term impediments due to the pandemic and change in administration, offset by robust YTD awards and backlog.
Valuation Methodology: EV/EBITDA Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
VSAT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: VSAT stock has declined by 13.41% in the past three months and is currently leaning slightly towards the higher end of the 52-week range of USD 29.82 to USD 61.35. We have valued the stock using the EV/EBITDA-based relative valuation methodology and arrived at a target price of USD 56.84. Considering the correction in the stock price in the past three months, current trading levels, procurement of new government contracts, and decent fundamentals, we recommend a "Buy" rating on the stock at the closing price of USD 49.58, down by 1.18% as of 07th May 2021.