Original Link | StreetAuthority by David Goodboy
We are in the early stages of a quiet revolution that has bypassed many investors. It is akin to the original space race of the 1960s and early 1970s, just without the media frenzy. This time, rather than world powers vying for space supremacy, it’s corporations looking to be the first to profit from space industry and travel.
The public’s excitement regarding space exploration and exploitation is at a shallow level, but opportunities exist for farseeing investors to snap up stocks of emerging space-age companies. The leading investors on Earth are already heavily invested in space technology.
The most notable, and wealthiest, investor in this pace is Jeff Bezos of Amazon (Nasdaq: AMZN). He has committed to investing $1 billion per year into Blue Horizon, a space tourism and payload launch company. Paul Allen, co-founder of Microsoft, has invested in the rights to an upper atmosphere launch vehicle. Tesla founder Elon Musk has an ambitious goal to colonize Mars with his company SpaceX. Finally, Richard Branson has launched a space tourism business called Virgin Galactic.
Many companies in the new space race remain in private hands. However, several public companies are starting to look very appealing to investors looking for early entry into the sector.
1. Orbital ATK (NYSE: OA)
Orbital is by far my favorite participant in the new space race. The company is a leading aerospace company with a $6 billion-plus market capitalization, and employs over 13,000 people. Its primary products include launch vehicles and related propulsion systems; satellites and associated components and services; composite aerospace structures; tactical missiles, subsystems and defense electronics; and precision weapons, armament systems, and ammunition. We’re not talking about a start-up company here.
While it is existing businesses are quite profitable — the company boasts annual revenues of close to $5 billion and gross margins of over 21% — it’s a unique angle that has me most excited.
Orbital is on its way to being the first mover in the satellite repair business. Imagine being the only player in a repair business where the machines being repaired cost around $300 million to build and launch. The potential here is truly astronomical.
Right now, there are approximately 1500 satellites operating in earth’s orbit and it’s far cheaper to repair them than to launch a replacement. As a frame of reference, a typical satellite generates between $40 and $60 million in cash annually for 15 years. We are talking big bucks and even bigger upside.
The first in-space satellite servicing system is called The Mission Extension Vehicle-1 (MEV-1). The spacecraft wrapped up its critical design review and has 75% of the platform and payload parts delivered to the company’s Virginia location. MEV-1 will start to service its anchor customer, Intelsat S.A., in early 2019. The vehicle has an expected life of 15 years and promises to be a significant profit center.
Satellites bring in around 26% of revenue and rocket systems account for another 35%, making Orbital a strong player in the sector. Revenue is forecasted to grow by 4% in 2017, and earnings are projected to increase by 10% to over $6.15 per share.
Drilling down on recent fundamental performance, the company has a substantial $15 billion-plus backlog of orders thanks to new business activity. In the second quarter 2017, strong revenue and margin growth promise to keep driving the stock price upward. Shares have surged over 23% so far in 2017, setting up an ideal momentum buying opportunity.
2. ViaSat (Nasdaq: VSAT)
If you’ve ever used the internet on a commercial aircraft, you may have used ViaSat’s services. ViaSat operates in three segments: satellite services, commercial networks, and government services. Through four satellites, the company provides high-speed interest to in-flight and terrestrial customers.
While this broadband company is trading lower by over 8% this year, fundamental figures are still strong. In its fiscal first quarter 2018, the company posted a record $154 million in operating cash flow and a $1 billion-plus order backlog.
Research & Development, SSL liability payments, and the ViaSat-2 (the next iteration of the company’s satellite design) ramp-up negatively impacted the adjusted EBITDA numbers year-over-year, but when these issues are removed EBITDA shows a robust 9% growth over the same time frame. The company is in the process of transitioning to next generation service plans and currently has 568 commercial aircraft set up for internet service with 840 under contract.
There are two factors that have me bullish on this company. First, government contract awards surged 88% in the fiscal first quarter with a nearly 50% increase in order backlogs. Secondly, payments on the first-gen ViaSat-1 are coming in, and government contracts for cybersecurity and tactical data links can only increase in our volatile geopolitical world.
I like the fact that the company is not a one-trick pony like our next, even more risky pick.
3. Gogo (Nasdaq: GOGO)
A pure-play satellite broadband provider for Aircraft, Gogo is shaping up to be a great long-term hold. The company is a global leader in inflight satellite connectivity for both commercial and private aviation. However, its shares have fallen on hard times recently.
Gogo is cash flow-negative, but things are rapidly improving. In the second quarter, the company saw record revenue of over $170 million and set guidance forecasts of 450 to 550 aircraft installations in 2017. Growth has resulted in net losses, but that is a very temporary headwind as the expenses will lead to profits over time.
Gogo’s new Alaska Airline contract and improving global economic conditions are signs of the company’s bright future.
Risks To Consider: I have listed the above companies in order of risk. At their cores, these are technology businesses in the new space race. Technology firms are subject to competition and innovation making them irrelevant. It is the nature of the beast. Always use stops and position size properly when investing.
Action To Take: Consider allocating a portion of your portfolio to one or more of my favorite new space-related stocks.
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