EchoStar Corporation (SATS) and Iridium Communications Inc. (IRDM) are two of the world’s leading satellite communication providers. SATS operates through Hughes and EchoStar Satellite Services segments to provide broadband network technologies, satellite services, and other managed services. IRDM delivers postpaid mobile voice and data satellite communications, personal connectivity devices, and various Internet of Things (IoT) services.
The increasing need for satellite-based services and broadband services, coupled with a growing demand for connectivity for voice and data services, is propelling the growth of SATS and IRDM. The rapid deployment of 5G technology and IoT services is expected to generate greater gains and position these two companies to benefit from sustained demand in the long run.
However, IRDM has lost 1.7% over the past three months, while SATS has returned 12.6% over the same period. Also, in terms of year-to-date performance, SATS is the clear winner with 14.4% gains versus IRDM’s 4%. But which of these stocks is a better pick now? Let’s find out.
Latest Movements
This month, Hughes Network Systems, which is owned by SATS, secured additional capacity over Puerto Rico for its satellite internet services. Because the demand for connectivity has increased immensely, this expansion should help SATS to connect more people to the internet.
Also, last December, SATS entered a partnership with Jersey Telecom to provide hybrid satellite/cellular capability to Internet of Things (IoT) and mobility users across Europe and the U.K. This should enable SATS to offer cost-effective and reliable connectivity to its customers in those markets.
In March, IRDM appointed Tony Frazier to its Board of Directors, where he will support the strategic oversight of the company’s business enterprise. His knowledge and wealth of experience should help the company to drive growth as it continues to expand its footprint and explore new business areas.
Recent Financial Results
During the three months ended December 31, 2020, SATS’ consolidated revenue declined 2% year-over-year to $489.27 million, due mainly to lower equipment sales and estimated negative foreign exchange. The company’s adjusted EBITDA rose 7% from the prior-year quarter to $166.72 million. Its net loss from continuing operations was $2.6 million, an improvement of $53.7 million from the previous year. Also, it reported cash and cash equivalents of $2.5 billion as of December 31, 2020.
IRDM’s total revenue increased 5.5% year-over-year to $146.51 million in the fourth quarter ended December 31, 2020. The company’s operational EBITDA was $84.8 million, representing an increase of 5.8% from its year-ago value. IRDM’s commercial service revenue was $91.1 million, up 3% from the prior-year quarter, attributable primarily to increased revenues from hosted payload and broadband services.
Past and Expected Financial Performance
SATS’ revenue has increased at a CAGR of 7.4% over the past three years. In comparison, IRDM’s revenue grew at an annualized rate of 9.2% over this period. However, IRDM’s EBIT has decreased at a CAGR of 36.4% over the past three years, while the CAGR of SATS’ EBIT increased 40.3% over this period.
SATS’ revenue is expected to rise 1.5% in the current year and 3.4 % next year. Consensus EPS estimates indicate a 92.9% improvement in the current quarter and 175.6% in its fiscal 2021. In comparison, analysts expect IRDM’s revenue to increase 3.7% in its fiscal year 2021 and 6.9% in 2022. Also, the company’s EPS is estimated to increase 79.2% in the current quarter, 66.7% in the current year, and 128.6% next year.
Profitability
SATS’ trailing-12-month revenue is more than three times IRDM’s. But IRDM is more profitable, with a gross profit margin of 75.5% versus SATS’ 60.6%.
However, SATS’ cash from operations of $534.39 million compares favorably with IRDM’s $249.77 million.
Valuation
In terms of trailing-12-month Price/Sales, IRDM is currently trading at 9.36x, which significantly higher than SATS, which is currently trading at 1.26x. Also, its forward EV/EBITDA of 18.67x is 418.6% higher than SATS’ 3.60x.
So, SATS is the more affordable stock.
POWR Ratings
SATS has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. However, IRDM has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
In terms of Value Grade, SATS has a B, consistent with its lower-than-industry EV/Sales ratio. But IRDM’s Value Grade of C is reflective of its higher-than-industry EV/EBIT ratio.
Both SATS and IRDM have a Growth Grade of B, which is consistent with the expected increase in earnings and revenue.
Also, both SATS and IRDM have C Momentum Grades, consistent with their price returns over the past three months.
Of the 10 stocks in the D-rated Entertainment - TV & Internet Providers group, SATS is ranked #1. IRDM is ranked #36 of 67 stocks in the C-rated Air/Defense Services industry.
In addition to the grades we’ve highlighted, our POWR Ratings system has also rated both SATS and IRDM for Sentiment, Stability, and Quality. Get all SATS ratings here. Also, click here to see the additional POWR Ratings for IRDM.
The Winner
As the demand for connectivity continues to rise, both SATS and IRDM are good long-term investments. However, SATS appears to be a better buy based on the factors discussed here. We think SATS’ much lower relative valuation and favorable growth prospects should help it perform better in the near term.
Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to learn about the top-rated stocks in the Entertainment - TV & Internet Providers industry. Also, click here to access the top-rated stocks in the Air/Defense Services industry.
IRDM shares were trading at $40.79 per share on Thursday morning, up $0.72 (+1.80%). Year-to-date, IRDM has gained 3.73%, versus a 9.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.
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