ViaSat's Secure Satellite Communications: The Right Business, The Right Time

| About: ViaSat, Inc. (VSAT)

ViaSat Inc. (NASDAQ:VSAT) serves up digital satellite, networking, and signal processing equipment for both government and commercial clients. It makes secure networking products for tactical communications and mobile satellite communications systems designed for military UHF frequencies. For the commercial market, ViaSat produces satellite broadband systems for consumer applications, as well as antenna systems, mobile satellite systems, and very small aperture terminal [VSAT] products used in enterprise telecommunications. The company's customers include aerospace and defense contractors such as Boeing, telecom service providers, and commercial enterprises. It also contracts directly with government agencies.

Back in 2002, this stock hit a record low of $3.90. In the same year, the earnings per share were a negative 18 cents. Since then, the stock price and the earnings have improved dramatically. The stock is currently trading at $31 a share and the earnings are forecast to be $1.50 this year, up from $1.27 last year. Look for $1.75 next year. Revenues have almost doubled since 2004 when they were $346 million. Analysts are expecting $600 million this year and $700 million next year. They're looking for earnings to grow, on average, 19.5% a year over the next 5 years while revenues ramp at 13.5% a year, on average, in the same time frame.

There's an ever increasing demand for satellite communications technology for military and commercial applications. New contracts awarded to VSAT rose 18% in the last year, up to $525 million. The backlog now sits at $389 million. Foreign military customers are putting in more orders, ones like the Turkish Air Force and the Taiwan Ministry of Defense.

Last year, VSAT bought two companies: Intelligent Compression Technologies, a data compression developer that increases the speed of broadband, wireless, and satellite services; and Enerdyne Technologies, a video data link system designer specializing in military surveillance applications.

A few numbers: Current assets are almost 3 times current liabilities, including $100 million in cash. Return on equity has improved every year since 2003, expected to be 12.5% this year, 13% next. Net profit margin is stuck at 7.7%. Stock is a little over 2 times book value. Officers and directors own more than 18% of the stock. Market Cap is $900 million.

This is still a small stock, but it's growing in the right ways: sales and profits both improving with profits outracing revenues, a sign of better efficiencies. There's no question that in this age of terrorism secure communications is a needed service and will only see demand grow. VSAT is in the right business at the right time. If it keeps executing as it has in the last 5 years, VSAT should continue to see its stock do well.

The Good: Earnings jumped 27% in 2006.
The Bad: High valuation.
The Beautiful: Increasing demand, home and abroad, for products.

VSAT 1-yr chart


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