Even approaching a 52-week low and re-purchasing shares, is Iridium stock an attractive investment opportunity?
Even approaching a 52-week low and re-purchasing shares, is Iridium stock an attractive investment opportunity?
Iridium Communications' (IRDM) stock is currently taking a tumble, down 37% in the past year. However, there was a brief respite in July when the company surpassed second-quarter earnings expectations and pledged to maintain or even boost its 4% sales growth rate throughout the year. Despite this positive outlook, the stock's price-to-free cash flow (FCF) ratio has inched up since then, reaching 12.
In a surprising twist, Iridium's board of directors recently approved a potential $500 million stock buyback plan. For a company with a market cap of just $3.5 billion, this is a significant move. Iridium attributes this decision to its successful deployment of the 66 operational satellites from its Iridium NEXT constellation, which has put it in a position to reap profitable benefits.
But is this the right move? Let's delve into the numbers.
At a market cap of $3.5 billion, Iridium's $3 billion investment in deploying its satellite constellation has left it with a substantial debt load of $1.6 billion, making for an enterprise value of $5.1 billion. Although Iridium generated $256 million in FCF over the past year, this steadily growing number is expected to peak at about $285 million by 2025. With such projections, Iridium's current valuation – 18 times next year's cash profit – might be pushing it.
This leaves investors questioning whether Iridium should be focusing on debt reduction instead of further share buybacks. While Iridium's profits stand at $0.70 per share, a $500 million buyback could potentially boost its per-share profit by 15%, making its apparent earnings growth appear more impressive to investors.
Ultimately, whether this buyback program is in the best interest of Iridium or its investors depends on the company's ability to maintain a double-digit growth rate in its FCF. If it can manage this, Iridium Communications' stock could be in for a prosperous future.
Enrichment Data Insights
Iridium Communications has demonstrated robust long-term growth potential. Its third-quarter 2024 revenue reached $212.8 million, with service revenue increasing by 5% year-on-year, accounting for 75% of the total revenue. The company also recently launched the Iridium Certus 9704, an advanced IoT module that supports satellite IoT applications with real-time data analysis.
In addition, Iridium's expected earnings gross for the upcoming year are projected to grow by 12.50%, from $0.80 to $0.90 per share. The stock buyback program, announced on September 19, 2024, could play a significant role in supporting Iridium's long-term growth by potentially boosting investor confidence and maintaining or growing its earnings per share, making the company's financial performance appear more robust to investors and analysts. However, it's crucial to monitor the company's debt position to ensure that any buyback program does not excessively exacerbate its debt level.
Iridium Communications' board of directors believes that the company's successful satellite deployment warrants a $500 million stock buyback plan, aiming to boost investor confidence and potentially enhance its earnings per share. However, considering Iridium's substantial debt load of $1.6 billion and the need to maintain a double-digit growth rate in its free cash flow, investing in debt reduction could also prove beneficial for the company's long-term financial health.