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Intelsat Worth Just $1, Warns Morgan Stanley

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Morgan Stanley’s Simon Flannery maintained an Underweight rating for Intelsat SA (NYSE: I), while reducing the price target from $5 to $1, citing accelerating declines in the company’s revenues in 2016.

Intelsat’s disappointing 2016 guidance, along with increased satellite capacity and technological threats, indicate a reduction in pricing levels. The deterioration in the pricing of new deals will, however, take time to get reflected in the financials, given the long-term contracts of network services, analyst Simon Flannery noted.

High Leverage

Intelsat has hired an advisor to look into its high leverage and significant maturities.

“While Intelsat does not have any significant maturities until 2018, its equity and bond pricing reflects significant financial risk, with some debt issues now yielding 49% to maturity. Ahead of
any debt maturities, the near term focus will be on Intelsat’s cash position and free cash flow generation,” Flannery wrote.

The company’s growth prospects are driven by its ability to translate the upcoming satellite launches into incremental revenues. Although the company’s leverage has always been high, its high margin business model offers deleveraging options, the analyst commented.

“However, with revenue growth stalling and becoming increasingly negative, the window to delever via FCF generation is effectively closed,” the Morgan Stanley report added.

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