Buy ViaSat On The Dip
ViaSat (VSAT) reported another good quarter. The broadband services supplier reported revenue growth and profits. Shares are stuck trading in a range between $56 and around $64 in the last six months. With the latest results and positive outlook, chances are good that the company will break out.
ViaSat’s revenue improved by 7.80 percent over last year. Earnings quadrupled on a non-GAAP basis to $12.1 million, or $0.25 per share.
|
$ mln |
Q1 FY16 |
Q1 FY15 |
Y/Y Change |
|
Revenues |
344.4 |
319.5 |
7.80% |
|
Adjusted EBITDA |
77.5 |
60.2 |
28.90% |
|
Non-GAAP net income |
12.1 |
2.4 |
401.50% |
|
Non-GAAP diluted per share net income |
0.25 |
0.05 |
400.00% |
Source: ViaSat
Growth should continue for the firm, helped by a backlog of $872.5 million, higher service revenue, and better operational efficiencies. The company thinks it will meet EBITDA growth of 20 percent this fiscal year and next. So far, the market is not responding favorably. The stock moved in a trading range of between around $54 and $66 in the last year:
The uncertainty in stock markets is not helping ViaSat’s share price. If the Nasdaq Index (QQQ) falls again in the next few weeks, it would create an entry point in the low $50’s for investors.
ViaSat’s revenue comprises mostly of government systems. The company won 139 new contracts in the quarter. The Link 16 tactical radio business is contributing positively to ViaSat’s government backlog. Revenue also grew to $145 million, adding $28.9 million in adjusted EBITDA to results:
|
(In millions) |
|
|
|
|
Q2 2016 |
Q1 2015 |
Year-Over- |
|
|
Year |
|||
|
Change |
|||
|
Satellite Services |
|||
|
Adjusted EBITDA |
54.6 |
32.8 |
66.50% |
|
|
|
|
|
|
Commercial Networks |
|||
|
Adjusted EBITDA |
-6.1 |
5.5 |
-211.20% |
|
|
|
|
|
|
Government Systems |
|||
|
New Contract Awards |
139 |
138 |
0.70% |
|
Revenues |
145 |
118 |
23.60% |
|
Adjusted EBITDA |
28.9 |
21.5 |
34.70% |
ViaSat is investing in R&D for ViaSat-2 and ViaSat-3 generation networks. This is necessary as revenue fell from the Australian National Broadband Satellite network fell. Even with the setback, service revenue is exceeding product revenue. This is good news, because it will mean an improvement in earnings in the quarters ahead.
The current quarter will benefit from seasonal strength. In the past, subscriber growth starts in June and ends in February. In the first-quarter ViaSat reported a weighted ARPU (average revenue per user) of $55.79. This is a record high for the firm.
Downside and upside target price
ViaSat closed recently at $60.25. Assuming earnings of $2.00 per share next year, ViaSat could trade at a 35 times forward multiple, or $70 per share. Conversely, a sell-off in the markets could mean the stock falls to a 52-week low of $52.26.
Disclosure: None.
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