UPDATE: Macquarie Downgrades ViaSat (VSAT) to Underperform

(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."

For an analyst ratings summary and ratings history on ViaSat click here. For more ratings news on ViaSat click here.

Shares of ViaSat closed at $80.79 yesterday.

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