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On Tuesday, Iridium Communications (NASDAQ:IRDM) Inc.’s stock rating was upgraded by William Blair from Market Perform to Outperform. The firm cited a robust free cash flow outlook and strong partnerships as key drivers for the positive outlook on the company’s shares. Despite a recent 9% drop in share price following earnings, William Blair sees over 20% potential upside for Iridium over the next year. According to InvestingPro data, the stock is currently trading at $21.59, near its 52-week low of $22.18, with analysts setting price targets ranging from $30 to $49. InvestingPro analysis suggests the stock is currently undervalued based on its proprietary Fair Value model.
The upgrade is supported by Iridium’s reaffirmation of its $302 million free cash flow projection for this year, which is 13% of the company’s market cap. Analysts at William Blair believe the current 7-times free cash flow multiple could return to 10 times as Iridium’s free cash flow grows. InvestingPro data shows the company generated $306 million in levered free cash flow over the last twelve months, with an attractive free cash flow yield of 13%. Additionally, the company’s ongoing partnerships with Garmin (NYSE:GRMN) and the U.S. government are seen as very healthy and contribute to the positive rating. Garmin’s InReach device continues to perform well in the market, and there is potential for a Garmin watch featuring Iridium satellite connectivity in the future.
Iridium’s financial performance also underpins the upgrade, with a 6% increase in EBITDA this quarter and plans to implement price increases in the summer. InvestingPro reports the company’s EBITDA reached $406.6 million in the last twelve months, with a robust gross profit margin of 72.2%. The company has managed to grow revenue and EBITDA despite facing competition from Apple (NASDAQ:AAPL)’s partnership with Globalstar (NASDAQ:GSAT). Furthermore, the impact of tariffs related to Iridium’s Thailand-based contract manufacturer is expected to be minimal, estimated at a negative $3 million, with a potential increase to $7 million if tariffs rise. For deeper insights into Iridium’s financial health and growth prospects, investors can access the comprehensive Pro Research Report available exclusively on InvestingPro.
The company’s share repurchase program is another factor contributing to the upgrade, with Iridium buying back approximately 10% of its float per year. This aggressive buyback strategy is highlighted as a key strength in InvestingPro Tips, demonstrating management’s confidence in the company’s future. This trend is expected to continue into the 2030s, potentially reducing the share count to 65 million from 110 million today. If Iridium maintains its $300 million free cash flow, this could imply a free cash flow per share of $4.62 in 2031.
Lastly, Iridium’s recent acquisition of Satelles has opened up a new market for alternative GPS solutions, which is anticipated to be strategic for both military and commercial uses. Revenue from Satelles is expected to increase over time. William Blair acknowledges that intensifying competition from Globalstar, SpaceX, and others poses a risk to their positive stance, as competitors may face regulatory and technical challenges in trying to match Iridium’s global coverage.
In other recent news, Iridium Communications reported first-quarter 2025 earnings that surpassed analyst expectations. The company achieved earnings per share (EPS) of $0.27, exceeding the projected $0.22, and recorded revenue of $214.88 million, slightly above the anticipated $211.74 million. Despite these positive results, Iridium’s stock experienced a decline, reflecting investor concerns about future growth and market conditions. The company demonstrated a 6% increase in operational EBITDA to $122.1 million and a 4% rise in service revenue, driven by an 11% growth in commercial IoT revenue. Iridium’s management remains optimistic about its growth trajectory, with expectations of double-digit growth in commercial IoT revenue for 2025. The company also plans to increase its quarterly dividend to $0.15 per share in the third quarter of 2025. However, potential tariff impacts and a decline in subscriber equipment sales present challenges for the company. Despite these hurdles, Iridium continues to focus on expanding its partner ecosystem and enhancing its service offerings.
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