Intelsat (I) Tanks in 2019: A Value Stock or a Value Trap?

Shares of Intelsat S.A. I have declined 68.1% so far (as of Dec 23, 2019), making it the worst performer within the Zacks Satellite and Communication industry. The decline was primarily triggered by the Federal Communications Commission’s (“FCC”) support for the purported move by the Congress to hold public auction for its C-band spectrum.

The Downfall Trigger

Intelsat, along with some other satellite providers, had decided to sell some of the airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum – widely known as the C-band – in a private auction to raise cash and repay debt. The airwaves acquired over the years were mostly used by these firms to deliver videos to TV stations and were considered as surplus resources. Moreover, the coveted spectrum was much in demand by telecom carriers for the deployment of 5G networks and offered a huge opportunity to rake in large sums of money.

However, several U.S. senators introduced a bill titled the ‘5G Spectrum Act’ that mandated the public auctioning of the C-band to start no later than year-end 2020, and sharing at least half of the proceeds with the FCC. With the FCC chairman Ajit Pai publicly supporting this view, shares went on a tailspin as the companies were set to lose significant chunk of legitimate money.

Down But Not Out

Despite a dismal stock performance, Intelsat is focusing on five operational priorities which are likely to stabilize its core business, improve competitive position, return it to growth and optimize asset value. Firstly, the company aims to leverage all assets within its global network for maximum return. Intelsat further intends to scale its managed services across enterprise, maritime, business jet commercial and aeronautical government opportunities and build powerful distribution channels to amplify its direct marketing efforts.

Third, the company expects to lead the industry in seamless implementation of satellite-based telecommunications solutions with state-of-the-art infrastructure. Intelsat aims to invest in and develop standards-based terminals and ground hardware, innovative and software-defined technology, and participate in 3GPP and other broad telecom sector standards development.

In addition, it intends to maintain a disciplined stance on cash flow management and enhance productivity of its deployed capital. Last but not the least, the company expects to optimize its spectrum rights to maintain sector leadership and provide regulatory and operational guidance based on market experience.

Intelsat is transforming its business and sector by investing in and deploying state-of-the-art technologies that will change the type of applications it serve and increase its share of global demand for broadband connectivity. It intends to boost revenues by driving stability in its core business, employing a disciplined yield management approach, and emphasizing the development of strong distribution channels for its four primary customer sets of broadband, mobility, media and government. Intelsat believes that developing differentiated managed services and investing in related software- and standards-based technology will help enhance its relevance within the broader telecommunications landscape.

With such inherent growth potential, Intelsat is likely to script a turnaround in the near future and benefit investors in the long run.

Zacks Rank & Key Picks

Intelsat presently has a Zacks Rank #3 (Hold). Better-ranked stocks in the broader industry include KT Corp. KT, PLDT Inc. PHI and Mobile TeleSystems PJSC MBT, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

KT Corporation has a long-term earnings growth expectation of 11.5%.

PLDT is currently trading at a forward P/E of 8x.

Mobile TeleSystems has a long-term earnings growth expectation of 4.9%.
 
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