Can David Tepper Aid Intelsat (I) to Rebound From 2-Year Low?

Zacks Equity Research

February 19, 2020 at 9:27 AM·5 min read

Intelsat S.A.’s I shares soared 25.8% yesterday as Appaloosa Management, the hedge fund firm overseen by famed billionaire investor David Tepper, announced that it has acquired 2.9 million shares of the satellite and communication services provider. This is likely to offer significant boost to the beleaguered company that tanked 83.8% in the past year and recorded an abysmal low of $2.61 on Feb 5, 2020.

What Triggered the Plunge?

Intelsat shares declined sharply in November last year when investors resorted to panic selling as the Federal Communications Commission (“FCC”) lent its support to the Congress’ move to hold public auction for its C-band spectrum. The stock declined 67.1% in 2019, making it the worst performer in the Zacks Satellite and Communication industry.

Notably, Intelsat, along with some other satellite providers, had decided to sell some of the airwaves in the 3.7 gigahertz-to-4.2 gigahertz area of spectrum – widely known as the C-Band – in a private auction to raise cash and repay its huge debt burden. The airwaves acquired over the years were mostly used by these firms to deliver videos to TV stations and were considered surplus resources. Moreover, the coveted spectrum was much in demand by telecom carriers for the deployment of 5G and offered a huge opportunity to rake in large sums of money.

However, several U.S. senators introduced a bill titled the ‘5G Spectrum Act’ that mandated the public auctioning of the C-band to start no later than year-end 2020, and sharing at least half of the proceeds with the FCC. With the FCC Chairman Ajit Pai publicly supporting this view, shares went on a tailspin as the companies were set to lose significant chunk of legitimate money.

The Likely Savior

Intelsat seems to have found a savior in David Tepper as his hedge fund firm scooped up more than 2% shares in the firm, thereby making it the 11th-largest shareholder. The backing by a billionaire reposed investor confidence and seemed to work wonders as shares witnessed an uptrend on the news.

In a letter to the board, Tepper further urged the company to adopt a tougher stance against FCC, file for a bankruptcy and legally challenge the decision to hold a public auction of the C-Band. The FCC is slated to vote later this month on the proposal, which aims to raise up to $9.7 billion of auction proceeds by auctioning the C-Band sometime in December. Intelsat is eligible to receive about $4.85 billion for giving up its airwaves to leading carriers like AT&T Inc. T, Verizon Communications Inc. VZ and T-Mobile US, Inc. TMUS.

Down But Not Out?

Despite a dismal stock performance, Intelsat has been focused on five operational priorities, which are likely to stabilize its core business, improve competitive position, return it to growth and optimize asset value. Firstly, the company aims to leverage all assets within its global network for maximum return. Intelsat further intends to scale its managed services across enterprise, maritime, business jet commercial and aeronautical government opportunities and build powerful distribution channels to amplify its direct marketing efforts.

Third, the company expects to lead the industry in seamless implementation of satellite-based telecommunications solutions with state-of-the-art infrastructure. Intelsat aims to invest in and develop standards-based terminals and ground hardware, innovative and software-defined technology, and participate in 3GPP and other broad telecom sector standards development. In addition, it intends to maintain a disciplined stance on cash flow management and enhance productivity of its deployed capital. Last but not the least, the company expects to optimize its spectrum rights to maintain sector leadership and provide regulatory and operational guidance based on market experience.

Moving Forward

Intelsat is transforming its business and sector by investing in and deploying state-of-the-art technologies that will change the type of applications it serves and increase its share of global demand for broadband connectivity. It intends to boost revenues by driving stability in its core business, employing a disciplined yield management approach, and emphasizing on the development of strong distribution channels for its four primary customers — broadband, mobility, media and government. Intelsat believes that developing differentiated managed services and investing in related software- and standards-based technology will help enhance its relevance within the broader telecommunications landscape.

With such inherent growth potential and backing by Tepper, this Zacks Rank #3 (Hold) stock is likely to witness a steady ascent and script a remarkable turnaround in the near future, benefiting investors in the long run. You can see the complete list of today’s Zacks #1 Rank stocks here.

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