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Gogo Stock: a “Perfect 10”
Stock Analysis & Ideas

Gogo Stock: a “Perfect 10”

The pandemic has had a particularly negative impact on the travel sector. However, it looks that a gradual recovery is underway, as travel restrictions are relaxed and global vaccination programs are accelerated.

Gogo (GOGO) is one firm that appears to be well-positioned to gain from this trend. With the rebound in air travel, the company’s stock has risen about 82% over the past year. The firm, which is based in Chicago, offers a business aviation market with internet connection and cellular entertainment services.

The firm raised its long-term financial objectives on September 28, noting the growth of private aviation travel as a reason. (See GOGO stock charts on TipRanks)

From 2020 through 2025, management expects revenue to rise by 15% on an annual basis. That’s up from a previous forecast of at least a 10% increase in sales. Furthermore, the business anticipates 45% adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin by 2025, up from 40% this year. An adjusted EBITDA margin of 35%-40% was originally forecast by management.

In addition to the foregoing, management is optimistic about increasing free cash flow estimates, to around $125 million by 2023, and up to $200 million by 2025.

In response to the guidance upliftment, Gogo CEO Oakleigh Thorne said, “Growth in private air travel continues to expand, fueling what we expect will be sustained growth in demand for inflight connectivity as customers seek to replicate their home and office connectivity in the air.”

The fact that the outlook was so upbeat came as a huge comfort to investors. On Tuesday, the stock price soared over 38% as a result of the announcement.

Gogo is also working to improve its business foundations and looking for ways to drive growth. In this regard, the firm is working hard to complete the building of its 5G network by the end of next year. The firm should be able to drive more sales and produce funds as a result of the strong demand for fifth-generation wireless technology, resulting in a rise in cash flows.

Coming to the company’s last quarter financials, Gogo’s revenues improved 51% year-over-year to $82.4 million, owing to growth in both Service and Equipment revenue. However, losses rose to $0.63 per share, although the firm claims to be on the verge of turning a profit.

During its earnings call, Thorne said, “Gogo is at an exciting inflection point as we expect to achieve sustainable positive net income beginning in the third quarter of 2021.”

However, Gogo, like any other business, has its fair share of risks. Due to chip shortages and coronavirus-related difficulties, the firm looks to be stuck in raw material pricing instability and supply-chain interruptions. This could cause a further delay in the deployment of its 5G network, as well as a reduction in profitability.

Thus, I am Neutral on Gogo stock.

We do not have many analysts covering this stock over the past three months.  Gogo stock has picked up a rating from just one analyst, Scott W. Searle from Roth Capital.

Searle maintained a Buy rating and increased the price target to $16.50 from $16.00. This implies 1.7% downside potential to current levels.

Further, the stock’s “Perfect 10” on TipRanks SmartScore, which comprises 8 unique data sets, indicates that the stock has strong potential to outperform market expectations.

Disclosure: On the date of publication, Shalu Saraf had no position in any of the companies discussed in this article.

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