Government Prospects, ViaSat-2 to Drive Growth for ViaSat

ViaSat Inc.’s VSAT earnings in the recently-reported quarterly results were, no doubt, hurt badly by escalating research and development costs, and ramped-up expenses, ahead of offering subscribers service with its new high-speed satellite. Despite the same, we believe the company has numerous growth drivers in place.

The stock has appreciated 4.6% over the past six months, ahead of the industry’s average gain of 2.9%. Let’s discuss a few of those growth catalysts for this Zacks Rank #1 (Strong Buy) stock.

ViaSat’s Government Systems business has been outstanding in recent times, and has been gaining even greater momentum, which should reflect well in the quarters to come. 

The segment reported impressive revenue growth of 15% year-over-year fiscal year to date, driven by an expanding service base and strong momentum in tactical data-link products, government mobility platforms and secure networking products. It also recorded strong growth in cyber-security and information assurance products. Splendid growth in revenues drove strong Adjusted EBITDA (up 30% year over year).

The company recently launched the ViaSat-2 satellite. ViaSat-2, touted to have twice the bandwidth and seven times more broadband coverage, is a massive improvement over ViaSat-1 and has immense prospects. The company is ready for the service launch of the ViaSat-2 satellite in coming February.

Per initial tests, the company anticipates to grow its distribution channel significantly, leading up to the ViaSat-2 service launch.

In-flight connectivity is also sustaining robust growth momentum and remains another strong potential tailwind for ViaSat. The company also projects sound growth in in-flight connectivity, with a significant increase in shipments and installations projected early next year. It anticipates significantly greater growth early next year. In fact, it expects to witness a significant ramp with Gen-2 installs later this fiscal year, particularly on American Airlines and Qantas. The Commercial Air business will likely prove to be a key profit driver in the quarters to come.

Just last week, the company signed a new contract with JetBlue, for both aircraft connectivity and on-board Wi-Fi distribution. Under the contract, ViaSat will upgrade JetBlue’s fleet with its next-generation connectivity suite. The aircraft will then have improved access to the coverage and capacity offered by ViaSat's next-generation ViaSat-2 satellite platforms.

ViaSat maintains a leading position in the satellite and wireless communications market. The company has garnered enough economics of scale and scope to serve vast emerging markets in South America, Africa, the Middle East and Western Asia. This should be a key catalyst for the company’s operations in the quarters to come.

ViaSat, Inc. Price, Consensus and EPS Surprise

ViaSat, Inc. Price, Consensus and EPS Surprise | ViaSat, Inc. Quote

Lately, ViaSat’s earnings have suffered quite a lot due to R&D expenses, but per the company, total R&D investments look set to peak this fiscal year. The primary drivers are the ViaSat-3 payload, pre-flight development and testing, and commercial in-flight connectivity, STCs and line-fit activity. This indicates that we can see more pressure on profits in the upcoming quarters. Also, the costs related to the ViaSat-2 service launch activities and preparations for the large-scale in-flight Wi-Fi ramp are estimated to further burden the bottom line.

However, strong backlog levels, robust prospects of core government business and significant demand for higher speeds of broadband connectivity in residential, in-flight, and government markets are likely to accelerate the company’s growth momentum. In addition, the ViaSat-2 satellite is anticipated to help this company fortify its foothold in new geographic markets.

Other Stocks to Consider

Some other stocks in the same space include Ubiquiti Networks, Inc. UBNT, Motorola Solutions, Inc. MSI and Comtech Telecommunications Corp. CMTL, each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ubiquiti Networks has a decent earnings surprise history for the trailing four quarters, beating estimates thrice, with an average positive surprise of 5.5%.

Motorola Solutions has an impressive earnings surprise history. The company recorded an average positive surprise of 13.2% over the trailing four quarters, beating estimates all through.

With four back-to-back, strong earnings beats, Comtech has a striking average positive surprise of 78.8%.

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