IoT Services And Satellite Integration Will Drive Future Opportunities

Key Takeaways

• Strategic acquisitions and IoT partnerships are driving service revenue growth, boosting earnings through civil and commercial applications.
  
• Buybacks, dividend increases, and European logistics expansion protect margins and fuel EPS growth amid perceived stock undervaluation.
  
• Competitive pressures and geopolitical risks may impact Iridium's market share, revenues, and customer retention strategies in a challenging satellite communication sector.

Catalysts

Provides mobile voice and data communications services and products to businesses, the United States and international governments, non-governmental organizations, and consumers worldwide.

• The rollout of new services and subscriber growth, including next-generation IoT and alternate PNT, are expected to drive service revenue expansion. This is likely to support higher revenue growth in the future.
  
• The acquisition of Satelles last year and the integration of satellite time and location services into solutions are forecasted to boost revenue from civil and commercial applications, impacting overall earnings positively.
  
• Iridium's partnerships with major IoT providers and the development of Iridium NTN Direct on standard-based chipsets are seen as future catalysts for material revenue growth. This is expected to enhance revenue lines significantly through increased IoT service revenue by 2026.
  
• The continuation of strategic buybacks and dividend increases, along with ongoing investments in the network, is anticipated to drive EPS growth as the company believes its stock to be undervalued.
  
• The expansion of the third-party logistics relationship in Europe to mitigate tariff impact could protect operational EBITDA margins, allowing for absorption of additional costs without significant impact on earnings.

Iridium Communications Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Iridium Communications's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 14.7% today to 15.3% in 3 years time.
• Analysts expect earnings to reach $146.9 million (and earnings per share of $1.46) by about April 2028, up from $123.5 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $180.6 million in earnings, and the most bearish expecting $103 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.2x on those 2028 earnings, up from 19.0x today. This future PE is greater than the current PE for the US Telecom industry at 12.8x.
• Analysts expect the number of shares outstanding to decline 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 6.21%, as per the Simply Wall St company report.

Iridium Communications Future Earnings Per Share Growth

Risks

• The evolving U.S. trade policy and associated tariffs could lead to increased costs, impacting EBITDA by $3 million to $7 million depending on the tariff levels, potentially lowering net margins.
  
• Competitive pressures from new market entrants like Starlink and AST SpaceMobile might affect Iridium's ability to sustain or grow its market share, possibly leading to reduced revenue in the satellite communication segment.
  
• Iridium's government contracts and related revenues could face risks due to geopolitical dynamics and government expenditure reductions, potentially impacting their consistent revenue streams from these entities.
  
• The phase-out of IoT partners’ plans that allow for toggling between active and inactive status may lead to structural subscriber deactivations, which could influence subscriber numbers, though not immediate revenue due to contract structures.
  
• An increase in product pricing, even if planned, may not be well-received in a competitive market, potentially risking customer loyalty and impacting service revenue.

Valuation

• The analysts have a consensus price target of $39.714 for Iridium Communications 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 $49.0, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $962.3 million, earnings will come to $146.9 million, and it would be trading on a PE ratio of 28.2x, assuming you use a discount rate of 6.2%.
  
• Given the current share price of $21.61, the analyst price target of $39.71 is 45.6% 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.