Iridium Communications Inc Valuation – July 2018 $IRDM
Company Profile (excerpt from Reuters): Iridium Communications Inc., incorporated on November 2, 2007, is engaged in providing global satellite communications services and products. The Company offers mobile voice and data communications services through satellite, and provides communications services offering true global coverage. The Company provides services to businesses, the United States and foreign governments, non-governmental organizations and consumers through its satellite network, which has over 70 in-orbit satellites with in orbit spares and related ground infrastructure. Its satellite network provides communications services to regions of the world, including remote land areas, open ocean, airways, the polar regions and regions where the telecommunications infrastructure has been affected by political conflicts or natural disasters. The Company utilizes mesh architecture to route traffic across its satellite constellation using radio frequency crosslinks between satellites. As of December 31, 2016, the Company sold its products and services to customers through a wholesale distribution network of approximately 65 service providers, approximately 195 value-added resellers (VARs) and approximately 80 value-added manufacturers (VAMs).
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ModernGraham Valuation of IRDM – July 2018
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 | $1,948,404,840 | Fail | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.68 | 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 | 20600.00% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 37.09 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.16 | 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 | 2.68 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 5.51 | 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 | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $0.48 |
| MG Growth Estimate | -4.25% |
| MG Value | $0.00 |
| Opinion | Overvalued |
| MG Grade | D |
| MG Value based on 3% Growth | $7.02 |
| MG Value based on 0% Growth | $4.11 |
| Market Implied Growth Rate | 14.29% |
| Current Price | $17.95 |
| % of Intrinsic Value | N/A |
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 over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $0.68 in 2014 to an estimated $0.48 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.29% 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 below the price.
At the time of valuation, further research into Iridium Communications Inc revealed the company was trading above its Graham Number of $0. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 37.09, which was below the industry average of 38.56, 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 $-18.51.
Iridium Communications Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$18.51 |
| Graham Number | $0.00 |
| PEmg | 37.09 |
| Current Ratio | 2.68 |
| PB Ratio | 1.16 |
| Current Dividend | $0.00 |
| Dividend Yield | 0.00% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 3/1/2018 |
| Total Current Assets | $572,185,000 |
| Total Current Liabilities | $213,533,000 |
| Long-Term Debt | $1,977,884,000 |
| Total Assets | $4,111,781,000 |
| Intangible Assets | $49,652,000 |
| Total Liabilities | $2,503,563,000 |
| Shares Outstanding (Diluted Average) | 104,345,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | -$0.64 |
| Dec2017 | $1.82 |
| Dec2016 | $0.89 |
| 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 | $0.48 |
| Dec2017 | $0.97 |
| Dec2016 | $0.56 |
| 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
Iridium Communications Inc Valuation – Initial Coverage $IRDM
Other ModernGraham posts about related companies
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.
