Looking At ViaSat As A Possible Investment? Patience Is Required, Says Morgan Stanley

Patience is virtue for investors in ViaSat, Inc. VSAT, according to an analyst at Morgan Stanley.

The Analyst

Morgan Stanley analyst Simon Flannery initiated coverage of ViaSat with an Equal-weight rating and a $78 price target.

The Thesis

ViaSat's solid history of growth and innovation is encouraging, Flannery said in a note. However, he is put-off by the looming execution risk and heightened consumer requirements.

The analyst expects ViaSat's stock performance to hinge largely on the results at the company's Satellite Services segment, driven by the residential broadband business. According to Flannery, the increased throughout and service levels of the recently launched ViaSat-2 satellite could help stem the loss of subscribers.

Despite expectations of a strong rebound, with record net adds, Morgan Stanley sees execution risk in the form of limited visibility into consumer trends and pressured margins, as the new satellite ramps. The firm is below consensus on next year's EBITDA.

Morgan Stanley believes the impending launch of the next set of satellites, named ViaSat-3, to pose execution risk until 2020 and ahead. The company's expansion into the EMEA region, though opening a new market opportunity, exposes it to further execution risk, as it competes in a broader market, the firm said.

The firm is also concerned about competitive pressure, with the planned satellite constellations from the likes of OneWeb and Elon Musk's SpaceX. Additionally, Morgan Stanley doesn't expect the company to turn cash flow positive until after the first two ViasSat-3 satellites are pressed into service, which is likely by 2022.

The Price Action

ViaSat shares are nearly 10 percent higher in the year-to-date period.

Related Links:

How Musk's Tesla And SpaceX Could Combine

Major Players In Billionaire Space Race