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JPMorgan cuts Viasat stock to Neutral on low-Earth orbit risks, shares down

Published 09/17/2024, 06:38 PM
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VSAT
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JPMorgan analysts on Tuesday revised their rating for Viasat (VSAT), from Overweight to Neutral, citing the accelerating threat of low Earth orbit (LEO) disruption.

VSAT shares fell around 5% in the premarket trade.

Last week, United Airlines (UAL) announced plans to transition over 1,000 mainline aircraft to Starlink for in-flight connectivity (IFC). The transition, which is set to begin with trials next year, is expected to impact Viasat's service, as the company currently provides satellite capacity for a portion of United's fleet.

The financial firm estimates that Viasat could lose around $60-80 million, or 1-2% of its projected FY25 revenue, due to the change. This figure is based on the assumption that approximately 500 planes, both directly serviced by Viasat and those using LiveTV/Thales systems that rely on Viasat's satellite capacity, will be affected. The full impact is anticipated to materialize by calendar year 2027 as existing IFC contracts expire.

Despite recent contract wins with LOT Polish Airlines, Korean Air, Royal Jordanian Airlines, and Icelandair, the shift by United Airlines flags a potential risk to Viasat's long-term market share in the IFC and broader mobility segments.

“While we believe displacing VSAT’s leading market share in commercial IFC will likely take some time, and require significant execution from competitors, a well-heeled Starlink is difficult to bet against long-term even if impacting share of new wins/RFPs marginally,” analysts explained.

“We believe competitive fears are overblown (near-term) but expect the competitive overhang on shares to be difficult to dispel after last week’s announcement.”

This, JPMorgan notes, could mark the beginning of a significant shift toward larger low-Earth orbit (LEO) share wins.

“In our view, if airlines increasingly move to a single-source IFC provider/solution across their respective fleets, LEO displacement of legacy GEO providers could occur at an accelerating rate,” analysts noted.

Nonetheless, Viasat's Defense and Advanced Technology segment provides some valuation support, leading JPMorgan to maintain a Neutral rating despite the challenges.

Reflecting the expected reduction in mobility revenue, JPMorgan has also revised its price target for Viasat, lowering it to $15 from the previous $29.

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