Intelsat SA. (NYSE:I), a US$1.94B small-cap, operates in the telecommunications market which has experienced slower top-line growth in the past decade. However, the usage of telco services has been growing at a rapid rate, enabling telco companies to maintain their price by offering more differentiated services. Technological changes such as improvements in software and network efficiencies are the key driver to meet these changing consumer needs. Telco analysts are forecasting for the entire industry, a somewhat weaker growth of 6.24% in the upcoming year , and a massive growth of 30.01% over the next couple of years. However this rate still came in below the growth rate of the US stock market as a whole. Should your portfolio be overweight in the telco sector at the moment? Today, I will analyse the industry outlook, and also determine whether Intelsat is a laggard or leader relative to its telco sector peers. Check out our latest analysis for Intelsat
What’s the catalyst for Intelsat’s sector growth?
Innovations and technological developments allow telco companies to be more cost-competitive. However, this has become a necessity given that the overall growth in the sector is stagnating, and often the only way to maintain profitability is through cost-cutting. In the past year, the industry delivered growth of 6.44%, though still underperforming the wider US stock market. Intelsat lags the pack with its earnings falling by more than half over the past year, which indicates the company has been growing at a slower pace than its telco peers. Moreover, the trend of below-industry growth rate is expected to continue in the future with Intelsat poised to deliver a -1.73% growth compared to the industry average growth rate of 6.24%. As an industry laggard, Intelsat may be a cheaper stock relative to its peers.
Is Intelsat and the sector relatively cheap?
Telco companies are typically trading at a PE of 15.96x, relatively similar to the rest of the US stock market PE of 18.43x. This illustrates a fairly valued sector relative to the rest of the market, indicating low mispricing opportunities. Furthermore, the industry returned a similar 11.99% on equities compared to the market’s 11.17%, potentially illustrative of a turnaround. Since Intelsat’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Intelsat’s value is to assume the stock should be relatively in-line with its industry.
Next Steps:Intelsat is an telco industry laggard in terms of its future growth outlook. If Intelsat has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth is expected to be lower than its telco peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. However, before you make a decision on the stock, I suggest you look at Intelsat’s fundamentals in order to build a holistic investment thesis.
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Historical Track Record: What has I’s performance been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Intelsat? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!