Morgan Stanley On Intelsat: We're Downgrading On Bad Risk-Reward

In a report published Tuesday, analysts at Morgan Stanley downgraded

from Equal-weight to Underweight. The price target was set to $10. "While we like the stability that comes with Intelsat's high fixed costs and 78% EBITDA margins, this structure also leaves it highly dependent on revenue growth to spur any FCF improvement. This is currently causing Intelsat issues as revenues are guided for a second straight year of decline," the analysts explained. Morgan Stanley also expressed concern regarding the company's inability to bring about meaning growth in revenues over the next few years. The analysts expect Intelsat's revenues to decline by 4.9 percent and 2.2 percent, year on year, for the next two years. "Much of Intelsat's return to growth story hinges on the upcoming satellite launches in late 2015 and early 2016, a couple of which were recently delayed," the analysts said. The company is also witnessing pricing pressures in some of its markets, including Africa. The decline in industry utilization is likely to depress pricing further. On the other hand, video compression and streaming are likely to pressurize media revenues. The analysts also believe that "FCF pressure and elevated leverage creates refinancing risks in the medium term" for the company.