IRDM - Iridium: Q3 2023 Could Be The Onset Of A Bullish Trajectory (Technical Analysis)

2023-10-11 16:29:14 ET

Summary

• Iridium Communications Inc. has experienced a significant drop in stock price since hitting its 52-week high, but a reversal may be likely.
• Recent volatility in IRDM's stock can be attributed to its earnings report and speculation about its future growth prospects.
• The upcoming Q3 2023 earnings report could confirm a reversal and the beginning of a bullish trend for IRDM.
• Based on technical analysis, IRDM is likely to reverse, and a bullish trend could be marked by the Q3 2023 earnings report. Until this release, I recommend patience.

Investment Thesis

Iridium Communications Inc. (IRDM) has been on a downward trajectory after hitting its 52-week high of $68.34 in February. The stock has dropped about 35% since then and is currently trading near its 52-week low of $43.68, which is my support zone. From the technical analysis, a reversal seems likely; however, the overall trend and momentum are still bearish, and the stock may face strong resistance from its moving averages and previous highs. Given this background, I would advise caution and patience before investing in this stock.

From a long-term perspective, IRDM has a strong growth potential, which I believe will drive the stock's strong bullish trend when a reversal is fully confirmed. Further, I attribute the recent share volatility to the impact of its earnings report for the second quarter of 2023 and its investment activities, which I believe investors are speculating about the potential of those investments. With this in mind, I expect the upcoming Q3 2023 results to bring about more volatility and maybe confirm a reversal and the onset of a bullish trend. Given this information, I rate the stock a hold until a reversal is confirmed on the support zone at about $43.68.

Understanding The Recent Volatility

Share volatility can result from several reasons ranging from micro and macro factors. Based on my assessment, IRDM's recent volatility could be due to the following reasons. First is the impact of its earnings report for the second quarter of 2023, which was released on July 25, 2023. The stock dropped from $62.71 on July 26, a day after the report, to today's price of $44.10, marking a decline of about 30%. It reported a net loss of $30.7 million , or $0.24 per diluted share, for the second quarter of 2023, as compared to net income of $4.6 million, or $0.04 per diluted share, for the second quarter of 2022. The company also reported revenue of $193.1 million, which was below the analysts' expectation by $5.32 million. I believe this weak performance in the last quarter spelled skepticism among investors, which could have resulted in strong downward pressure.

Another possible reason for the downward trajectory is the uncertainty and speculation surrounding its future growth prospects. The company faces increasing competition from other players in the satellite communications industry, such as SpaceX, Amazon (AMZN), and OneWeb, launching their own low-earth orbit [LEO] satellite constellations to provide global broadband internet access. The company is also investing heavily in developing new products and services , such as its Iridium Certus broadband service, Iridium Edge solar-powered device, and Iridium CloudConnect service. In my view, these initiatives may take time to generate significant revenue and profitability for the company, something I believe has brought some uncertainty and speculations on the part of investors.

Based on these factors, Iridium has been experiencing share price volatility recently, as investors are reacting to its earnings report and evaluating its competitive position and growth potential in the satellite communications market.

My Q3 2023 Expectations: A Potential Onset Of Bullish Trajectory

On October 19, 2023 , IRDM is slated to report its third-quarter 2023 financial results. Based on the previous quarter's performance and analyst estimates, I have certain expectations and thoughts about how the company will perform and how its stock price might react.

First, I expect the company to report a revenue growth of about 10% year-over-year. This is based on the strong demand for the company's services and products, especially in the commercial IoT and government segments. In addition, the company has established various new initiatives and partnerships, such as providing worldwide connections for XCMG heavy equipment and hosting payloads for the United States Space Command. I anticipate these projects will provide additional revenue streams for the company in this quarter's report and in the future.

Second, I expect the company to record a positive net income and EPS in the third quarter, as opposed to a net loss and negative EPS in the second quarter. The net loss in the second quarter was primarily attributable to a $37.5 million one-time charge linked to the write-off of the company's remaining ground spare satellite. As a result, I anticipate the company will report a better net income of about $24.5 million and an EPS of about 0.19 in the third quarter, benefiting from sales growth and operational efficiency due to the write-off.

Based on these expectations, I think that the company's stock price may grow after the earnings release, as it will demonstrate its strong financial performance and growth potential. The current stock price of $44.10 is below the average analyst target of $66.71, which implies a significant upside potential. I believe the Q3 earnings report could be the onset of a reversal from a bearish trend to a bullish trajectory.

IRDM's Long-term Growth Potential

Upon evaluating IRDM, I am confident in the company's long-term growth potential. Here are my reasons for this observation. First off, the company has a unique and valuable asset : its constellation of 66 low-earth orbit [LEO] satellites that provide global coverage and low latency for voice and data communications. It also completed the upgrade of its satellite network, called Iridium NEXT, which enhances its service quality and capacity. The company also has nine spare satellites in orbit and six more on the ground, which ensure its network reliability and longevity. In my opinion, this aspect will result in consumer satisfaction due to the increased service delivery provided by the innovations. In a word, this unique and valued asset provides a significant competitive edge.

Another factor is its diversified and loyal customer base. The company has a diversified and loyal customer base across various sectors and regions. The company serves more than 1.9 million subscribers, including commercial, government, and military customers. It has a high customer retention rate of about 94%, which reflects its strong customer satisfaction and loyalty. IRDM also has a global distribution network of more than 450 partners , who provide value-added services and solutions to the end-users.

Further, the company has a large and growing addressable market driven by the increasing demand for connectivity and data services in remote and challenging environments. The size of the global alternative data market was estimated to be $4 billion in 2022 and is projected to increase to around $273.01 billion by 2032, growing at a CAGR of 52.6% from 2023 to 2032.

Given the company's diverse global base and distinctive product, I think it is well-positioned to take advantage of this expanding market, which will likely result in improved top and bottom lines in the future.

In conclusion, I believe that given the expanding market and the strategic positioning provided by the company's global diversity and distinctive and broad product offering, IRDM can exhibit substantial future growth.

Technical Analysis

Based on different indicators, here is my technical analysis of IRDM. To begin with, the stock is below its downward-sloping 50-day, 100-day, and 200-day moving averages. This shows that the stock has a weak momentum and is in a bearish trend.

Secondly, the stock is also trading slightly above its lower Bollinger Band, which is a volatility measure based on the standard deviation of price movements. This indicates the stock has been oversold and is due for a bounce or reversal.

The RSI, a momentum indicator that examines the magnitude of recent gains and losses, is now at 34.5, having recovered from a low of 29.6. This, in my opinion, implies that the stock may be recovering from the heavy selling pressure indicated by an RSI of 29.6, which was below the oversold limit of 30. Therefore, a bull trend could be on the horizon.

The stochastic oscillator, a momentum indicator that compares the stock's closing price to its price range over a given period, is now at 28.3, recovering from a low of 0.5. This figure is above the oversold level of 20, indicating that the stock may rise.

Lastly, according to the above diagram, the stock bounced off the support zone at around $43.83 on October 3 and appears to be returning for a retest. With my Q3 performance projections, I expect the stock to significantly rebound upon a retest, identifying the support zone as the greatest entry point should Q3 2023 turn out to be a strong quarter.

Based on this technical analysis, I believe IRDM is currently oversold and may be due for a short-term recovery or reversal. However, the overall trend and momentum remain bearish, and the stock may confront significant resistance from its moving averages and recent highs. As a result, I would recommend patience before buying this stock and waiting for confirmation signs from the indicators or market action. This will most likely become clear after the company's third-quarter results report is released. To mitigate your downside risk, you could also consider employing various hedging tactics, such as options or stop-loss orders.

Risks

Investing in IRDM entails some risk. In my view, here are some of the risks associated with investing in this stock.

• Technological failures or disruptions: The corporation is vulnerable to technological failures or disruptions in its satellite network, which could impact service quality, reliability, and reputation. It relies on a constellation of 66 operational satellites and 9 spares in orbit, all vulnerable to threats like space debris, solar flares, and cyber-attacks.
• Regulatory changes: IRDM is vulnerable to legislative changes or obstacles in the markets in which it operates, particularly in international markets. These markets may have differing or developing regulations and standards for satellite communications, spectrum allocation, data protection, and taxation.

Conclusion

Based on this analysis, IRDM appears to be approaching a reversal from a bearish trend to a strong bullish trajectory. Considering the adverse effects of its Q2 2023 earnings report on its downward pressure, I expect a stronger Q3 2023, which will mark the onset of a bullish trajectory. Until then, I recommend holding the stock while awaiting the earnings report release.

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