The Zacks Satellite and Communication industry participants are well-poised to gain from an increasing proliferation and cheaper access to space technology. This trend is leading to a diversification in end-market users. AI, Machine Learning and Big Data have given rise to multiple use cases across industries like oil and gas, agriculture, transportation and non-governmental organizations. Geopolitical competition in space as a contested domain is boosting investments by global militaries. Globalstar GSAT, Gilat Satellite Networks Ltd. GILT and Telesat Corporation TSAT have significant growth potential on global security threats, surging defense budgets and demand for high-quality imagery and value-added services. However, volatile macroeconomic challenges, inflation and supply chain dynamics could affect the companies' growth prospects.

Industry Description

The Zacks Satellite and Communication industry comprises space technology companies that provide satellite imagery, intelligence services and spacecraft and robotics for space exploration, research and national security. They help customers understand and navigate the evolving planet, deliver global broadband communications and explore space. These companies provide communication services to media businesses, fixed and wireless telecommunications operators, data networking providers and Internet service providers. They also offer commercial satellite communication services to government and military organizations. The firms provide satellite-based consulting and technical services, including the lifecycle of satellite operations and infrastructure, ranging from satellite and launch vehicle procurement to telemetry and commanding services.

What's Shaping the Industry's Future?

Advancements in Technology Hold the Key: There has been a radical change in highly specialized satellite manufacturing patterns. More emphasis is put on using ordinary buses and computer-aided design tools to customize the communications payloads. A mass-produced system is adopted, and several satellites are manufactured in an assembly line. Integration and testing have become highly automated. The extent of testing is lowered after prototyping and initial production is completed. Countries with comprehensive space programs have distinct military, economic and scientific advantages. However, complexity and barriers to entry into space have allowed only a few to develop notable capabilities. The demand for small satellites across regions is expected to increase over time. North America has the bulk of the market share, followed by the Asia Pacific, Europe and the rest of the world. North America maintains its dominance with the highest number of small satellite launches by government end users. The companies continue to align their products and services with the needs of the U.S. Department of Defense’s National Defense Strategy and the growing demand for international defense and intelligence.

Subscriber Momentum to Drive Growth: Wide proliferation and cheaper access to space technology have diverse end-market users. The companies share a strategic relationship with various government organizations, including military and disaster response agencies and non-governmental organizations, to provide robust, tactical, real-time voice and low-latency data command and control communications. A comprehensive product portfolio enables companies to expand their customer base and offset the losses from one product category with benefits from another. High product quality increases brand loyalty and enhances performance in a competitive market. For civil customers, notably NASA, growth is being driven by space exploration programs. For commercial customers, growth drivers include a strong demand for imagery due to new use cases, space-based remote sensing, Geosynchronous Equatorial Orbit (GEO) replacement demand and Low Earth Orbit (LEO) communications programs. Also, personal satellite communications are witnessing strong demand, leading to subscriber growth.

Spending on Space Infrastructure Could be Affected by Macroeconomic Weakness: With more than half of revenues from U.S. government customers, the industry will likely benefit from increasing defense and space infrastructure budgets. The explosion of space-based intelligence, surveillance, and reconnaissance and communications is expected to boost government investments in the sector. However, weakness in global macroeconomic conditions could compel customers to lower spending, which does not bode well for industry participants. Volatile supply chain dynamics and inflation could lead to higher costs and increased lead time, which are major concerns. Also, investor uncertainty amid a broader market slowdown is a hurdle.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Satellite and Communication industry is housed within the broader Zacks Computer and Technology sector. It currently has a Zacks Industry Rank #91, which places it in the top 37% of more than 248 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than two to one.

Before we present a few satellite and communication stocks you may want to consider for your portfolio, let’s look at the industry’s recent stock market performance and valuation picture.

Industry Outperforms Sector, S&P 500

In the past year, the Zacks Satellite and Communication industry outperformed the S&P 500 composite and the broader Zacks Computer and Technology sector.

The industry has gained 50.3% over this period compared with the S&P 500’s return of 23.5%. The broader sector has moved up 24.6%.

One-Year Price Performance

Industry's Current Valuation

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is commonly used for valuing satellite and communication stocks. The industry has a trailing 12-month EV/EBITDA of 6.94X compared with the S&P 500’s 17.37X. The sector’s trailing 12-month EV/EBITDA stands at 18.88X.

In the past five years, the industry has traded as high as 25.46X and as low as 4.43X, with a median of 7.20X, as the chart below shows.

3 Stocks to Watch as Industry Rebounds

Globalstar: Headquartered in Covington, LA, Globalstar offers satellite voice and data services to commercial and recreational users in more than 120 countries worldwide. Its products include mobile and fixed satellite telephones, simplex and duplex satellite data modems, and flexible service packages. Globalstar serves various sectors, such as oil and gas, government, mining, forestry, commercial fishing, utilities, military, transportation and heavy construction.  

The company’s efforts to boost the development of its spectrum and wholesale capacity services (especially within government and consumer verticals) bode well. GSAT’s XCOM RAN is specifically designed to support mission-critical, high-performance wireless applications. This technology, when combined with Globalstar’s licensed n53 mid-band spectrum, creates a powerful solution for private and enterprise 5G networks. 

At the Investor Day 2024 held in December 2024, the company reaffirmed its full-year revenue guidance of $245-250 million, with an adjusted EBITDA margin of 54%. For 2025, revenues are expected to be in the band of $260-285 million, with an adjusted EBITDA margin of approximately 50%. These projections are fueled by strategic investments in terrestrial networks and long-term growth initiatives.

Going forward, Globalstar anticipates its revenues to more than double, exceeding $495 million, with adjusted EBITDA margins surpassing 54%. Additional upside potential lies in the expansion of the terrestrial spectrum and XCOM RAN.

GSAT also recently transferred its listing to Nasdaq. Its board of directors has authorized a reverse stock split of its common stock pertaining to this listing transfer. The reverse stock split is aimed at liquidity improvement and increased investment participation from diverse institutional investors.

GSAT currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The current-year earnings are pegged at a loss of 1 cent, unchanged in the past 60 days. The stock has risen 34.1% in the past six months.  

Price and Consensus: GSAT

Gilat Satellite Networks: Based in Petah Tikva, Israel, GILT is a top provider of satellite-based broadband services, including designing and manufacturing advanced equipment and innovative technology. Gilat’s solutions support a range of applications, including broadband access, cellular backhaul, enterprise services, in-flight connectivity (IFC), maritime, trains, defense and public safety, all while meeting high service standards.

Strength in the defense sector bodes well for Gilat as demand for defense SATCOM solutions grows due to NGSO expansion and geopolitical events. Gilat's efforts to expand its in-flight connectivity (IFC) business are likely to have driven its top-line and bottom-line performance in the fourth quarter. In December 2024, the company received more than $18 million in orders for IFC solutions, primarily for Gilat SkyEdge platforms, related services and SSPAs, with delivery set for the next 12 months. Gilat’s adaptable architecture ensures reliable satellite connectivity, facilitating the fast growth of IFC networks.

GILT currently carries a Zacks Rank #3. The earnings estimate for 2025 is pegged at 47 cents unchanged in the past 60 days. The stock has risen 59.3% in the past six months.  

Price and Consensus: GILT

Telesat Corporation: Based in Ottawa, Canada, Telesat is a global satellite operator. Its Telesat Lightspeed network (Low Earth Orbit satellite constellation) has been stremalined to meet the needs of telecom, government, maritime and aeronautical clients. TSAT has inked funding arrangements with the governments of Canada and Quebec for its Telesat Lightspeed network. 

For 2024, Telesat expects revenues to be near the upper end of the guidance range of $545-$565 million. In the last reported quarter, Telesat’s revenues of $138 million declined 20.9% year over year, mainly due to a reduction in services and a lower renewal rate for a long-term agreement with a North American direct-to-home television client. As of Sept. 30, 2024, Telesat's contracted backlog for future services stood at $1 billion. This does not include revenue commitments associated with Telesat Lightspeed. Fleet utilization stood at 73.3%.

TSAT currently carries a Zacks Rank #3. The bottom line estimate for 2025 is pegged at a loss of $1.90, unchanged in the past 60 days. The stock has skyrocketed 152.6% in the past six months.  

Price and Consensus: TSAT

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