▶ Full Post Text
After RKLB announced plans to acquire IRDM in an approximately 8 billion dollar cash and stock deal, which satellite stock is currently the most worth watching?
The satellite and telecom equipment sector is increasingly attracting attention from space companies because it combines three critical elements: satellite constellations, licensed spectrum, and customers. Space based connectivity is also gaining importance for defense applications.
However, identifying the best satellite stock is not easy, mainly because many companies already exposed to the sector have seen significant price appreciation.
Personally, I am more positive on MDA Space (MDA), but its valuation has already expanded significantly, and there is also risk from customers bringing capabilities in house (insourcing), which could pressure its business model. Similarly, companies like Redwire (RDW) and AST SpaceMobile (ASTS) saw strong stock gains ahead of SpaceX (SPCX) going public, but they are still burning significant cash and remain unprofitable.
Among the pure play satellite operators that have not been acquired, there are Viasat (VSAT), Eutelsat (EUTLF), and SES (the latter two being European companies). VSAT has recently rallied sharply, but its growth outlook over the next few years is not particularly strong. As a result, newer Earth observation companies such as Planet Labs (PL) and Satellogic (SATL), as well as RF intelligence focused Spire Global (SPIR), may currently offer more attractive opportunities.
Historically, I have always been enthusiastic about anything related to space. I firmly believe that if humanity is to ensure long term survival, it must expand into space.
However, that does not mean I am bullish on every company in the sector. I remain skeptical of businesses that generate heavy net losses and significant cash burn.
That said, one company I previously liked a lot has recently been downgraded from “buy” to “hold”: Iridium Communications (IRDM). The downgrade is not due to fundamentals, but simply because after the Rocket Lab acquisition announcement, its upside appears more limited.
However, relative to other satellite companies, IRDM arguably still has one of the strongest fundamental profiles in the sector. In addition, since roughly half of the deal consideration is being paid in RKLB stock, it also becomes an interesting hybrid exposure.
Because IRDM is now closely tied to RKLB, volatility is expected to remain relatively muted until the deal closes, unless the transaction falls apart. In my view, with market risk rising overall, that kind of stability may actually be more appealing for more defensive investors.