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One of Our Best Stocks Just Got an Upgrade

industrials Dec 09, 2022

Price Target: $65 (30% upside) 

Current Price: $50

Target Date: Q3 2023

Stock: Iridium (IRDM)

We've been really happy about how well our industrial picks are doing compared to the wider market.

Stocks like Iridium ($IRDM) have achieved so much separation from the S&P 500 and looking back on their Q3 earnings -- we can see why. 

But don't worry, this update isn't just us patting ourselves on the back, it's us combing through the data and identifying one more huge opportunity that Iridium is clearly building towards. 

The margins on their current business are growing enough to justify way more investment considering the wider market and their expanding TAM.  

But looking at the landscape and some quieter announcements Iridium has made, we feel like they're on the verge of a whole new vertical that will blow our price target wide open.

Let’s get into it ðŸ‘‡


Iridium Crushes the Market:

Let's make this fast: Iridium is up just over 20% since our last price target update (read that here). And in the same period, the S&P 500 is down 8%.

This is largely due to the fact that services like Iridium just do not get affected by inflation and supply shocks the way most other stocks do.

Iridium has already done the legwork of launching the NEXT constellation. Now they just manage it and provide new equipment for enterprise customers to buy and establish partnerships. 

That's why we were ecstatic to see Iridium lean into that by pushing their margins even higher this quarter to a wild 58% of total revenue. They increased Operational EBITDA by 8% in the last quarter and increased their guidance for the year. 

This is strange because competitors like Starlink have become more operational and effective every month as most satellites get added to their constellation. So how is Iridium making more and more profit when they should be fighting more and more competition? 

This is one of those rare cases where being first and being specific gives you a huge advantage. Iridium's future was secured in the 90s back when they were a division of Motorola and they locked in part of the L band spectrum as their frequency for data.

We're not trying to pretend to be physicists here -- but essentially the L band is best used for lower bandwidth applications (lower data) but it's far more reliable than the Ka, Ku, and V bands that constellations like Starlink use. 

Sure, those Starlink bands are also way more optimal for a general-use internet (which is why SpaceX is building there in the first place). But if you can optimize the data on your device, Iridium's limited broadband and IoT capabilities are going to be a far better choice for your very expensive remote equipment. 

This is why IoT and Broadband are driving Iridium's margins higher and higher. They pushed a 23% increase in revenue YoY and have only just begun to penetrate their market. But this reliability sets Iridium up for the next big step 👇 


Texting is on the Horizon

Iridium has stated that they've secured an unnamed smartphone manufacturer as a partner for getting Iridium functionality into the next generation of Smartphones. Apple announced a similar deal with Globalstar a few months back and pushed that company into a whole new phase of growth. 

The natural partner for Iridium here is Samsung, but we don't want to speculate further until this is fully announced.

If this happens though, they would have access to the world's largest provider of smartphones (with 272M units shipped in 2021).

Texting in remote locations will be massive for Iridium as they expand their TAM into new markets and add a few general-use commercial applications. 

Now, a smartphone application for Iridium would almost certainly be limited to texting because of the lower bandwidth their constellation is capable of -- but even a texting capability for them would be a paradigm shift in its constellation business. 


Iridium Outlook:

And this is a big part of why Iridium is a fairly strong proof of our chief philosophy here at 

Boring is Beautiful.

While the rest of the market faces a LOT of volatility as the big tech firms report earnings and set the tone of this bear market -- Iridium is forging ahead at the exact defensive pace it needs to.

Connectivity and necessity are key to a world and supply chain that is only getting more complicated. 

Pair that with a share buyback likely coming this quarter and Iridium is truly set up to continue its run toward the top.

Rating: Overweight

Market Cap: $6B

Dividend Yield: 0%