Raymond James Bullish On Iridium As Satellite Maker Shifts From SpaceX To Sales

SpaceX launched ten Iridium Communications Inc IRDM satellites successfully into orbit Jan. 11 from Vandenberg Air Force Base in California.

This marks the end of the launch campaign of SpaceX, in which Tesla Inc TSLA is a stakeholder, and completes the refresh of the Iridium constellation, with 66 active satellites plus nine in-orbit spares, according to Raymond James.

The Analyst

Raymond James’ Ric Prentiss maintains a Strong Buy rating on Iridium Communications.

The Thesis

Apart from the launch of the final 10 NEXT satellites, Thales Group has constructed six more that will remain as ground spares, Prentiss said in a Monday note.

With the completion of the NEXT constellation, Iridium can now focus on ramping up sales of its new NEXT-enabled services under the Certus brand, the analyst said. 

Certus sales could commence this year, but may not be "significant" until 2020-2021 due to long sales cycles, Prentiss said. 

“We also believe the company is working with the U.S. government on renewing that major contract, but do not know what impact the partial government shutdown is having on negotiations." 

Iridium is expected to enter an extended capex holiday of around 10 years, with a decline to about $36 million per year, the analyst said. Raymond James predicts the company will aim to refinance its debt "to become more equity-friendly," Prentiss said.

Price Action

Iridium Communications shares were down 4.25 percent at $20.26 at the time of publication Monday. 

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Photo courtesy of SpaceX.