Shares of satellite voice and data service provider Globalstar (GSAT) have climbed over 50% in the past three months on the news of a collaboration with Apple (AAPL) to introduce satellite connections to its smartwatches in 2025. After investing around $1.5 billion in Globalstar to strengthen the supporting infrastructure, Apple’s Watch Ultra model is expected to provide users with off-the-grid texting capabilities, even without a cellular or Wi-Fi connection.
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Meanwhile, Globalstar continues to provide reliable satellite and terrestrial connectivity services worldwide, focusing on secure data transmission and customer wireless connectivity. Its terrestrial spectrum, Band 53, and 5G variant, n53, are already deployed in 12 countries, contributing to a growing revenue opportunity. Further, Globalstar announced a strategic partnership with Peiker to introduce satellite-based emergency services and telematics capabilities for the automotive industry.
The stock trades at a rich valuation but may represent a growth-at-a-reasonable-price (GARP) option for investors interested in the next generation of communication services.
Expanding the Use of Satellite-based Communications
Globalstar is a telecom infrastructure provider that utilizes its LEO satellite constellation to ensure secure data transmission, enable the connection and protection of assets, and facilitate critical operations. It also plays a crucial role in life-saving communications worldwide.
The company’s Band 53 and its 5G version, n53, provide licensed channels for carriers, cable companies, and system integrators to enhance customer wireless connectivity through private networks. It also offers the XCOM RAN product for capacity gains in dense wireless deployments.
The company recently announced a strategic partnership with Peiker Holding to integrate satellite-based emergency services and telematics capabilities into the automotive industry. This alliance will allow Peiker to serve as Globalstar’s representative in Europe, aiding in distributing and introducing the company’s services within the European market. Additionally, Peiker will provide technical support for relevant projects. The partnership is also set to benefit from Peiker’s product development resources and initiatives, which will be used to enhance the performance of Globalstar’s automotive technologies.
Improving Margins
The company released its Q3 financial update, reporting revenue hit $72.31 million, surpassing estimates by $11.82 million while marking year-over-year growth of 25% from Q3 of 2023. Service revenue also saw a 28% hike from the previous year, primarily due to wholesale capacity revenue.
The adjusted EBITDA margin was approximately 54%, with the surge attributed to an out-of-period item following the recognition of performance bonuses for 2023 and part of 2024. However, if excluded, the margin would have remained consistent with last year’s period. GAAP earnings per share (EPS) of $0.00 aligned with expectations.
The company closed the quarter with a healthy balance sheet, having $52 million in cash on hand and a leverage ratio of 2.9 times. A recently announced agreement is expected to positively impact the company’s financial structure currently and in the long run, including providing capital for the new MSS network, refinancing 13% notes at a lower cost, and generating a higher EBITDA margin.
Management has offered forward guidance, predicting total revenue to range between $245 million and $250 million for 2024, as opposed to the consensus projection of $240.37 million.
Upside Potential
The stock has been on a volatile ride (beta of 2.04), climbing 83.67% over the past three years. It trades near the middle of its 52-week price range of $1.00 – $2.74 and shows mixed technical signals. The stock trades at a premium, with a P/S ratio of 14.04x sitting well above the Communication Services sector average of 1.22x.
Analysts following the company have been cautiously optimistic about GSAT stock. Based on three recent recommendations, Globalstar is rated a moderate buy overall. The average price target for GSAT is $3.00, representing a potential upside of 60.86% from current levels.
GSAT in Review
Globalstar has been making significant strides in carving out its niche in the satellite communication market, with a hefty investment from Apple and an exciting partnership with Peiker. The stock has surged and trades at a rich valuation, but that might just be the price investors must pay to participate in the company’s potential future upside.
