UPDATE: Macquarie Downgrades ViaSat (VSAT) to Underperform
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(Updated - November 16, 2016 10:10 AM EST)
Macquarie downgraded ViaSat (NASDAQ: VSAT) from Neutral to Underperform with ap rice target of $55. Analyst Andrew DeGasperi thinks fundamentals will likely be volatile in over 6 to 9 months.
"A US$500m+ equity raise will likely go a long way to keep leverage below 4x through 2020, as the company ramps up development of its VS-3 satellite. So why downgrade to Underperform now? First, we expect fundamentals will be volatile near term: We are cautious ahead of what is likely to be a very noisy CY17 on the back of Echostar’s Jupiter 2 launch, potential migrations from ViaSat-1 (even if below Wildblue->ViaSat-1 levels) and incremental SAC/R&D costs next year. Second, at 14x+ CY17E EBITDA, VSAT shares are trading at a 65%+ premium to peers and are at historical record levels. Multiples will likely get compressed and stay that way until at least mid-CY17, in our view. Our FY17/FY18 EPS estimates go 6%/11% lower to reflect the dilution, which also sets our TP to US$55 from US$57," said DeGasperi.
The analyst added, "We understand why ViaSat decided to raise at least US$500m or a dilution of 12%+: 1) Each VS-3 satellite (there are 2 planned between CY19-CY20 will likely cost US$600m+ and there is likely some residual capex of US$100m-200m for VS-2; 2) a Republican victory may have created uncertainty around the attractiveness of future debt markets as well as EX-IM financing going forward; and 3) using current liquidity assumptions, we estimate leverage would have reached ~4x by FY18. Even a slight dip in the high-margin defense business may have increased the probability of breaching covenants."
Shares of ViaSat closed at $80.79 yesterday.
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