Intelsat SA (NYSE:I) has enjoyed a renewed interest not seen in years. Long written off by investors, a deal to serve parts of West Africa has offered relief to Intelsat stock. Sadly, with balance sheet troubles continuing and lack of clarity on the terms of the financial deal, the chances of this deal reviving Intelsat stock in the long run appear remote.
The Deal Breathes New Life Into Intelsat Stock
The Luxembourg-based company operates communications satellites. Although it can trace its history back to 1964, the company took its current form and the Intelsat name in 2013. It has earned most of its revenue from operations in North America. However, the reason why Intelsat stock jumped may involve a reduced dependence on North America.
Word of a new deal with Vodacom Business Nigeria led to double-digit percentage increases in Intelsat stock on both Monday and Tuesday. Under the agreement, Intelsat satellites will help bring expanded broadband capacity to markets throughout West Africa. Much of West Africa, especially remote areas with oil and gas operations, depend on satellites for telecom-related needs.
The agreement also provides good news for the long-suffering stock. After launching its IPO in 2013, the stock briefly spiked as high as $25 per share before seeing a steady decline. By 2016, Intelsat stock had fallen below $2 per share. In that time, declining revenues and high debt levels plagued the company. Since 2016, the stock has gradually risen. With the price spikes this week, the Intelsat stock price has moved above $6.50 per share.
The New Deal May Not Fix Intelsat’s Balance Sheet
Still, even with the deal, the company’s balance sheet remains weak. With the renewed interest in the stock, the market cap has risen to around $800 million. Unfortunately, that pales in comparison to its long-term debt burden of over $14 billion. Moreover, neither company disclosed financial terms of its latest agreement. This lack of information makes it difficult to measure the impact of the deal on company financials.
Also, Intelsat stock, which has never closed above $25 per share in its history, would have to reach $118 per share simply for its market cap to reach the level of its debt burden. The need for satellite communication ensures the survival of its assets. However, that does not guarantee the survival of Intelsat stock. Unless this agreement and any upcoming deals add billions to the bottom line, the company likely faces bankruptcy at some point. With no information on financial terms, I cannot see a basis for the stock price increase. Also, Intelsat would have probably disclosed financial terms had the revenue been enough to save the company.
Intelsat has no direct peers. Due to the high cost of satellite telecom, an AT&T Inc. (NYSE:T) or a Verizon Communications Inc. (NYSE:VZ) can make money by partnering with an American Tower Corp (NYSE:AMT) or a Crown Castle In/SH SH (NYSE:CCI) to build an infrastructure. For remote areas that cannot justify such a cost, Intelsat enjoys monopoly power. Sadly, these monopoly benefits appear too small to fix Intelsat’s balance sheet.
The Bottom Line on Intelsat Stock
Although a deal to serve West Africa has given new life to Intelsat stock, the debt burden likely remains too high to help the equity. Business and governmental activity in remote parts of the world ensures a need for the telecom links provided by Intelsat. However, the company’s balance sheet has become an obstacle to holders of Intelsat stock.
A $14 billion debt places too high of a burden on a company with a market cap under $1 billion. Moreover, the lack of financial information regarding the agreement casts doubts on the deal’s ability to reduce that burden.
The Vodacom deal provides welcome relief to the industry Intelsat dominates. Sadly, it may be too little, too late to save Intelsat stock itself.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.
