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Is This Penny Stock a Buy on Its Satellite Partnership With Apple?
In the high-stakes world of penny stocks, significant partnerships can often be game-changers, offering the potential for substantial returns. This is particularly true for Globalstar (GSAT), a component of the Russell 2000 Index (RUT), which recently expanded a satellite services partnership with tech giant Apple (AAPL). The news has sparked a surge in GSAT’s stock price, drawing keen interest from investors. Despite being lightly covered by analysts, GSAT holds a “Moderate Buy" rating, suggesting cautious optimism about its future.
This article delves into the details of Globalstar’s satellite partnership with Apple, exploring the implications for the company’s future growth. We will also examine the company's financials, valuation, and sentiment in the options market to gain a comprehensive view and determine whether GSAT is a compelling buy at current levels.
About GSAT Holdings Stock
Formed as a joint venture between Loral Corporation and Qualcomm (QCOM) in 1991, Globalstar (GSAT) is a Louisiana-based satellite and terrestrial connectivity service provider. GSAT offers a range of services, including direct-to-device satellite communication, IoT solutions, terrestrial connectivity, and wholesale satellite capacity, presenting it with significant market opportunities. Its market cap currently stands at $3.5 billion.
GSAT stock has climbed 43.4% over the past six months. However, it is still down about 4.6% year-to-date, underperforming the iShares Russell 2000 ETF's (IWM)17.8% gain over the same period.
GSAT Spikes After Expanding Satellite Services Deal With Apple
On Nov. 1, Globalstar shares soared over 31% following the telecom company’s announcement of an expanded agreement with its customer, Apple. The company’s stock surged more than 31% in the following trading session, too, bringing its total gains to around 63%.
Under the updated services agreement, Globalstar will provide Apple with expanded services through a new mobile satellite services network, which includes a new satellite constellation, additional ground infrastructure, and enhanced global licensing. Globalstar SPE, a company unit, will own the expanded mobile satellite services network.
As part of the deal, Apple will make an infrastructure prepayment of up to $1.1 billion as well as provide the necessary funds for the company to pay off its outstanding 13.00% Senior Notes due in 2029. Also, AAPL agreed to purchase 400,000 Class B Units in the Globalstar SPE entity, representing a 20% equity stake, for $400 million, payable upon closing.
GSAT projects that its total annual revenue will more than double the annualized levels of 2024 in the first year following the launch of the expanded satellite services.
Globalstar Rises After Solid Q3 Results
This morning, shares of Globalstar gained over 4% ahead of the bell after the company reported solid Q3 results and raised the lower end of its full-year revenue guidance.
GSAT’s total revenue grew 25.3% year-over-year to $72.3 million, beating Wall Street’s expectations by $11.82 million. The top-line growth was fueled by an increase in service revenue. Notably, service revenue rose 28% year-over-year to $68.9 million, primarily driven by revenue generated from wholesale capacity services, which benefited from the company earning performance-based bonuses under the services agreements. GSAT's GAAP EPS arrived at $0.00.
Globalstar’s CFO, Rebecca Clary, stated that the growth in wholesale capacity revenue remains the main contributor to the company’s improved financial results, with other recent business initiatives also providing overall support. It’s also worth mentioning that the company made further advancements in other strategic initiatives, including shipping XCOM RAN equipment, recognizing fees related to a proof of concept with a government services company, and executing other engineering contract work.
Meanwhile, the company’s adjusted EBITDA climbed 34% year-over-year to $42.8 million, primarily due to an increase in high-margin service revenue. The company’s adjusted EBITDA margin stood at 59%, up from 55% in the same quarter of the previous year.
Globalstar closed the third quarter with $51.9 million in cash, compared to $56.7 million as of Dec. 31, 2023. However, the company’s balance sheet has become a less critical factor due to the recent deal with Apple. It’s worth noting that GSAT is currently engaged in building and launching a new satellite constellation, which is consuming a significant amount of cash. During the first nine months of 2024, the company used net cash flows generated from operations of $98.5 million and net cash flows from financing activities of $4.9 million to fund capital expenditures totaling $107.7 million. After the current investment phase is complete, the company should be capable of generating robust cash flows.
Looking ahead, the company raised the lower end of its full-year revenue guidance to a range of $245 million to $250 million, up from the previous range of $235 million to $250 million. Also, adjusted EBITDA margin guidance was increased to 54% from 53%.
More News for GSAT Stock
On Oct. 4, Globalstar said that the Band 53 spectrum will be utilized to support high-value and mission-critical applications by combining it with the Citizens Broadband Radio Service through carrier aggregation in the United States. GSAT is partnering with Global Telecom, Alliance, and Hawk Networks, which builds on the Althea platform, to provide U.S. customers with an improved, seamless, and reliable connectivity experience. The company will utilize its 10 MHz channel in Band 53 to maintain uninterrupted private wireless network connectivity for CBRS networks, particularly in critical Dynamic Protection Areas or when Priority Access License channels are not available.
On Aug. 19, Globalstar announced that the United States Federal Communications Commission had approved a 15-year license extension for its HIBLEO-4 satellite constellation and granted permission to operate up to 26 replacement satellites. This modification approval will allow Globalstar to continue offering a range of voice and data communication services to consumers via its global satellite network.
Is GSAT Stock Overvalued?
Analysts tracking Globalstar anticipate the company’s net loss to narrow year-over-year to $0.02 per share in fiscal 2024. Additionally, analysts expect GSAT’s full-year revenue to increase by 7.40% year-over-year to $240.37 million.
Assessing GSAT’s valuation, its forward EV/Sales ratio is 16.13x, considerably higher than the sector median of 2.05x, yet roughly in line with its five-year average of 15.57x. The same pattern is evident in its forward price-to-sales ratio.
Although Globalstar’s valuation might seem high, the company’s financial metrics could still see a notable boost, particularly from the full deployment of its satellite constellation, suggesting there may be solid upside potential.
Options Market Sentiment on Globalstar Stock
Examining the January 17, 2025 option chain, the $2.00 CALL option has a bid/ask spread of $0.25/$0.30, and the $2.00 PUT option has a spread of $0.30/$0.40. Note that this option strike is closest to the current stock price. We can roughly determine the expected price movement by using the midpoint prices of these options:
0.35 (2.00 put) + 0.28 (2.0000 call) = 0.63/1.85 = 34.1%
Employing the long straddle strategy and based on current prices, the options market indicates that GSAT stock could experience a movement of approximately 34% upwards or downwards by the January options expiration from the $2.00 strike price. That would place the stock in a trading range of $1.22 to $2.48.
It’s noteworthy that at the $2.00 strike price, call options significantly outnumber put options, with a ratio of approximately 36 to 1, consisting of 52,172 open calls compared to 1,443 open puts. While it's not unusual to see a skew toward calls on lower-priced stocks like GSAT, this reflects a generally bullish sentiment in the options market.
What Do Analysts Expect For GSAT Stock?
Morgan Stanley analyst Simon Flannery noted that while details of the deal remain sparse, the expanded relationship with Apple “appears to be very encouraging.” The firm kept an “Equal Weight” rating and a $0.99 price target.
Craig-Hallum raised its price target on GSAT stock to $5 from $4 and maintained a “Buy” rating. The firm highlighted that the latest advancement in Globalstar’s partnership with Apple includes significantly larger commitments to services, infrastructure, and financing. Craig-Hallum views the updated deal as a clear indication that Apple and its customers are pleased with the current services and plan to expand them significantly in the future.
Analysts have a consensus rating of “Moderate Buy” on Globalstar stock. Notably, coverage of GSAT is light, with just three analysts providing recommendations for the stock. Among them, two recommend a “Strong Buy,” and one has a “Hold” rating. The average price target for GSAT stock is $3.25, suggesting a significant upside potential of 75.6% from current levels.
The Bottom Line on GSAT Stock
Undoubtedly, I believe the stock deserves a place in investors’ portfolios. The extended partnership with Apple represents a significant milestone for Globalstar. Moreover, the recent strong earnings report and bullish sentiment in the options market enhance the company’s investment appeal.
However, I recommend investors wait for a pullback before buying the stock, as many positives are already factored into the price at current levels, which could limit near-term upside potential.
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On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
