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ViaSat: Growth Plan Could Send Shares Skyrocketing

ViaSat (VSAT) shares have performed well so far this year, up about 2%, while most U.S. stocks have been down due to the geopolitical crisis in Eastern Europe.

Should the company manage to accomplish certain growth targets in the coming quarters of this year, the uptrend could accelerate sharply.

Thus, I am bullish on this stock.

Based in Carlsbad, California, ViaSat is a U.S. communications provider of high-speed satellite broadband services to residential users, various businesses, ships and airlines.

The company also supplies secure network systems for the U.S. government, with the Department of Defense, in particular, benefiting from the infrastructure.

Q3 2022 Results

Thanks to strong operations in each of its segments and following the acquisition of the remaining 51% stake in Euro Broadband Infrastructure Sàrl on April 30, 2021, total revenues increased by 25% year-over-year to approximately $720 million in Q3 2022.

The company’s income statement for the quarter ended with adjusted earnings per share of $0.33, down 15% year-over-year compared to $0.39 in the third quarter of fiscal 2021.

Adjusted EBITDA improved year-over-year to $163 million in the third quarter of fiscal 2022, compared to $148 million in the prior fiscal quarter. However, the adjusted EBITDA margin decreased 300 basis points as the company sustained higher costs due to the launch of the ViaSat-3 service. 

Higher research and development costs also impacted the adjusted EBITDA margin.

In addition, the company reported $569 million in awards, an impressive figure for just a single quarter, resulting in an order backlog of up to $2.1 billion, both figures on a consolidated basis.

Financial Condition

The company’s net debt-to-TTM adjusted EBITDA was 3.2 times as of December 31, 2021. This was successively flat but above plan thanks to strong revenue generation, a positive sign for shareholders who were also heartened by the information that the company’s cash flow could support the business without resorting to an additional capital loan.

Regardless of that debt ratio, the company’s financial position could be better as its cash on hand of $166 million as of December 31, 2021, is quite small compared to its total debt of $2.6 billion.

The liquidity that the company can generate from day-to-day business appears to be barely sufficient to meet short-term obligations on time. Those obligations also include paying interest on outstanding debt, which the company hopes to improve as a capability by delivering significant EBITDA growth in the future.

EBITDA Growth Under the Radar

The task for ViaSat should not be that difficult. Inflight Connectivity (IFC) is expected to make a huge contribution to the Satellite Services segment. 

The expected increase in the global commercial fleet to 50,000 aircraft by 2040, an astonishing growth of almost 100% from the current number (according to The Boeing Company (BA) Commercial Market Outlook), should provide the company with robust demand for its IFC.

The other two divisions of Government Systems and Commercial Networks should also post significant growth rates as a result of a high order book, and the continued normalization of procurement activities (following the disruptions caused by the COVID-19 pandemic), which the company may develop to handle new orders or to increase customer relationships.

Add to this the $7.3-billion acquisition of Inmarsat (by ViaSat), a UK provider of satellite telecommunication services to global users of mobile devices that communicate with ground stations via 14 geostationary communications satellites.

A more diversified portfolio of activities from both a technological and geographic perspective will allow the combined company to better capitalize on the opportunities that arise as digitization continues to gain traction across all industrial sectors.

ViaSat estimates that the transaction, which is expected to close in the second half of 2022, will create a company capable of increasing revenues and EBITDA by approximately 15% to 17% annually and producing positive free cash flow.

Wall Street’s Take

For the past three months, five Wall Street analysts have issued a 12-month price target for VSAT. The company has a Moderate Buy consensus rating based on three Buys, and two Holds.

The average ViaSat price target is $75.40, implying 53.3% upside potential.

Stock Statistics

Shares are changing hands at around $49 per unit, giving it a market cap of $3.6 billion and a P/E of 160.6. 

Over the past 52 weeks, the stock has traded between $39.13 and $68.76.

Conclusion

The company is in the process of developing certain growth projects, including the acquisition of Inmarsat, that should improve operating profitability and strengthen its financial position within months. 

This result will have a significant impact on the value of the stock.

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