Iridium Communications Inc Valuation – Initial Coverage $IRDM

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Iridium Communications Inc (IRDM) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Iridium Communications Inc. is a satellite communications company that offers mobile voice and data communications services. The Company utilizes mesh architecture to route traffic across its satellite constellation using radio frequency crosslinks between satellites. Its lines of business include land mobile, machine to machine, maritime, aviation and government. Its commercial services include postpaid mobile voice and data satellite communications services; prepaid mobile voice satellite communications services; broadband data services; machine-to-machine services; Iridium push-to-talk service, and other services. It provides services to businesses, the United States and foreign governments, non-governmental organizations and consumers. The Company sells its products and services to customers through a wholesale distribution network of approximately 75 service providers, approximately 200 value-added resellers and over 45 value-added manufacturers.

 

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of IRDM – January 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $1,005,948,209 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.63 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -293.59% Fail
6. Moderate PEmg Ratio PEmg < 20 18.86 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.00 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 3.71 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.57
MG Growth Estimate 7.79%
MG Value $13.67
Opinion Fairly Valued
MG Grade C
MG Value based on 3% Growth $8.23
MG Value based on 0% Growth $4.82
Market Implied Growth Rate 5.18%
Current Price $10.70
% of Intrinsic Value 78.29%

Iridium Communications Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, insufficient earnings stability or growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $0.37 in 2012 to an estimated $0.57 for 2016. This level of demonstrated earnings growth supports the market’s implied estimate of 5.18% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Iridium Communications Inc revealed the company was trading below its Graham Number of $16.79. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 18.86, which was below the industry average of 68.5, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-12.52.

Iridium Communications Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$12.52
Graham Number $16.79
PEmg 18.86
Current Ratio 4.63
PB Ratio 1.00
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $531,199,000
Total Current Liabilities $114,688,000
Long-Term Debt $1,546,777,000
Total Assets $3,398,220,000
Intangible Assets $45,992,000
Total Liabilities $2,079,336,000
Shares Outstanding (Diluted Average) 123,690,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.91
Dec2015 -$0.09
Dec2014 $0.69
Dec2013 $0.71
Dec2012 $0.83
Dec2011 $0.56
Dec2010 $0.27
Dec2009 -$0.82
Dec2008 $0.04

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.57
Dec2015 $0.44
Dec2014 $0.68
Dec2013 $0.55
Dec2012 $0.37
Dec2011 $0.10
Dec2010 -$0.12
Dec2009 -$0.26
Dec2008 $0.01

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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