Maxar Technologies vs. ViaSat: Which Satellite Stock is a Better Buy?
In the decade from 2010 to 2020, the number of satellites in orbit increased from 958 to 3,371. However, this 252% increase is a far cry from the 100,000 satellite prediction by 2030. Much of this growth is due to the increasing usage of the internet and rapid urbanization.
According to Research and Markets, the Global Satellite Market is projected to reach $508 billion by 2024, growing at a CAGR of 6.5% between 2020 – 2024. However, the satellite industry continues to face challenges, including the high cost of satellite hardware and components and government regulations.
Given this backdrop, I am going to analyze and compare two stocks engaged in satellite operations, Maxar Technologies Inc. (MAXR) and Viasat, Inc. (VSAT), to see which is currently the better investment.
Maxar Technologies, Inc.
Founded in 1969, Maxar Technologies Inc. is a satcom company that offers earth intelligence and space infrastructure solutions in the U.S. and worldwide. The company provides a broad range of its services to various types of customers such as government agencies, commercial clients, satellite operators, and others.
Year-to-Date, shares of Maxar Technologies are down about 20%, underperforming its benchmark, Procure Space ETF (UFO), which returned 22% over the same period.
On August 23rd, Maxar announced that it was awarded a five-year $60 million contract from the U.S. National Geospatial-Intelligence Agency (NGA). Under the terms of the contract, the company will continue its development of “a classified big data analytics program.” This program significantly reduces the time needed to analyze big data arrays from hours to minutes.
Recent Financial Performance & Analysts’ Estimates
In Q2, the company’s total revenue has risen 7.7% year-over-year to $473 million, beating the Wall Street consensus revenue estimates by $29.05 million. Besides, MAXR reported a GAAP EPS of $0.60, surpassing analysts’ estimates by $0.49.
As of June 30th, 2021, the company’s Adjusted EBITDA was reported at $132 million versus $138 million a year earlier. Its EBITDA margin also decreased by 300 bps to 46.6% amid a lower margin obtained from the Earth Intelligence segment.
For the third quarter, the analysts expect MAXR’s EPS to stand at $0.16 versus a year-ago value of $1.34. Additionally, a $449 million revenue estimate for the third fiscal quarter of 2021 implies a modest 3% growth compared to a prior year. Moreover, its revenues are projected to increase by only 3.4% in 2021 and by 5% in 2022.
Viasat, Inc. is a company that develops and sells digital satellite telecommunications, signal processing equipment as well as wireless networking across the globe. The company operates through three key segments: Satellite Services, Commercial Networks, and Government Systems.
Since the beginning of the year, shares of Viasat Inc. have gained about 53%, outperforming its peer, MAXR, as well as its benchmark, UFO.
On June 7th, Viasat achieved a crucial milestone for its Viasat-3 global constellation as the first satellite completed “the payload integration and performance testing”. The company said that Viasat-3 is expected to achieve the world’s highest capacity, generating more than 20kW of payload power. The company plans to launch the Viasat-3 satellite in early 2022.
Recent Financial Performance & Analysts’ Estimates
In the first quarter, ended June 30th, 2021, VSAT’s revenue increased 25.4% year-over-year to $665 million, topping analysts’ estimates by $37.66 million. The company’s net income came in at $18 million versus a loss of $8.5 million in the year-ago quarter. As a result, the company reported Q1 Non-GAAP EPS of $0.46, beating Wall Street consensus by $0.14.
Currently, Wall Street expects VSAT’s EPS to rise 133% year-over-year in 2QFY2022 to $0.07 per share. Following this trend, analysts expect that its second-quarter revenue could increase to $681.25 million. This estimate implies a rise of about 23% on a year-over-year basis. Furthermore, analysts expect to see revenue growth of 22.8% and 12% in FY2022 and FY2023, respectively.
In terms of Forward P/E, MAXR is currently trading at 48.40x, which is slightly higher than VSAT, whose multiple is currently standing at 44.66x. However, both companies trade with a premium compared to the industry’s median Forward P/E multiple of 17.8x.
When it comes to the Forward P/S multiple, VSAT’s P/S multiple of 1.32x is about 4% higher than MAXR’s 1.27x. Also, both companies look discounted compared to the industry median of 1.5x.
Finally, MAXR has a better margins profile with gross profit and EBITDA margin of 42.15% and 22.12%, respectively. These numbers exceed the VSAT figures by 33% and 19%, respectively.
The Bottom Line
I believe that VSAT, at these levels, is a better pick. VSAT is in a solid position to generate long-term returns because of its better revenue diversification, allowing it to grow at a higher pace in coming years. Finally, VSAT looks attractive from a valuation standpoint considering its growth potential.
Wall Street also rates VSAT as a “Strong Buy,” with an average price target of $70.75, which represents over 46% upside.