Gen-3 Satellite Rollout Will Expand Global Constellation

Key Takeaways

• The Gen-3 satellite launch and expanded government contracts drive demand, revenue, and future growth, enhancing BlackSky's competitive advantage.
  
• Strong long-term contracts and LeoStella integration improve revenue visibility and cost efficiency, boosting net margins and future profitability.
  
• Delays in contract transitions and reliance on government contracts can impact revenue growth and stability, while integration costs and macroeconomic factors affect margins and efficiency.

Catalysts

Operates as a space-based intelligence company in North America, the Middle East, the Asia Pacific, and internationally.

• The successful launch and operation of the Gen-3 satellites, with significant advancements in imaging technology and cost efficiency, is expected to drive increased demand and revenue as the company plans to rapidly expand its constellation.
  
• BlackSky's strategic long-term contracts, including a recent 7-year contract valued at over $100 million, provide strong revenue visibility and indicate customer confidence in the company's capabilities, positively impacting future revenue growth.
  
• The integration of LeoStella for satellite manufacturing supports operational efficiency and supply chain visibility, which should help manage costs and enhance net margins in the long term.
  
• Expansion of high-profile government contracts, such as the continued work with NRO and potential additions for Gen-3 services, suggests sustained and possibly increasing earnings from U.S. government clients as capacity comes online.
  
• The continued rollout of Gen-3 satellites promises to improve image quality and AI capabilities, potentially leading to higher margin service offerings and competitive advantage in the growing market, benefiting net margins and overall earnings.

BlackSky Technology Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming BlackSky Technology's revenue will grow by 30.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from -56.0% today to 1.4% in 3 years time.
• Analysts expect earnings to reach $3.3 million (and earnings per share of $0.08) by about March 2028, up from $-57.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 268.7x on those 2028 earnings, up from -4.4x today. This future PE is greater than the current PE for the US Professional Services industry at 20.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.42%, as per the Simply Wall St company report.

BlackSky Technology Future Earnings Per Share Growth

Risks

• The transition from the NGA EIM contract to Luno took longer than expected, impacting imagery revenue growth, which could affect near-term revenue streams.
  
• The integration of LeoStella has led to increased operating expenses, impacting the cost structure and reducing potential net margins.
  
• There is uncertainty regarding the pace and ramp-up of Luno and Gen-3 related contracts, which could impact revenue visibility and forecasts.
  
• Macroeconomic factors like potential tariff talks and supply chain uncertainties may increase CapEx requirements, affecting the overall cost efficiency and cash flow.
  
• The reliance on U.S. government contracts exposes the company to risks from budget cuts and changes in defense spending priorities, potentially impacting long-term revenue stability.

Valuation

• The analysts have a consensus price target of $18.571 for BlackSky Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $14.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $224.7 million, earnings will come to $3.3 million, and it would be trading on a PE ratio of 268.7x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $7.91, the analyst price target of $18.57 is 57.4% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.