Viasat (VSAT) looks well-positioned to benefit from tremendously increased utilization of satellites by militaries and civilians over the longer term, and the company reported generally upbeat results for the third quarter of its fiscal 2026 on February 5. Moreover, VSAT expects to continue generating positive free cash flow during FY27.
On the negative side, a comment by the firm’s CEO may indicate that it does not plan to spin off its fast-growing defense and technology unit. Such a spin off, which the company has been considering undertaking for several months, likely would create a great deal of value for the firm’s shareholders, and the stock will probably retreat meaningfully if the company announces that it won’t make the move.
Still, Viasat’s long-term outlook remains very positive, so VSAT stock appears to be worth buying for investors with time horizons of 12 months or more.
A Likely Big Beneficiary of Higher Satellite Utilization
Viasat has its own satellites and has made a deal to utilize Telesat’s (TSAT) low Earth orbit constellation. The latter network is expected to be launched in 2027.
So with robotaxis starting to proliferate in many cities and militaries increasingly starting to turn to autonomous drones, Viasat is well-positioned to benefit from these trends.
Further, in accordance with my own research, the CEO noted that satellite-based broadband internet service has become much cheaper over the past decade, spurring the demand for such service. Indeed, my research indicates that satellite broadband internet service is now significantly cheaper to provide than land-based internet service.
And with both Elon Musk and Jeff Bezos pursuing the idea of placing data centers in space, Dankberg reported that Viasat would be able to provide “communication capability” for those centers.
Finally, the CEO noted that providing connectivity to “billions of devices” will “be a big market… as long as you can do the handovers quickly…and there’s interoperability between the terrestrial and satellite domains.”
Dankberg added that Viasat was in negotiations regarding Equatys, its joint venture with Space42. As I noted in my previous article on Viasat, the firm has said that Equatys “’is expected’ to launch a satellite-based network that will offer service ‘to standard smartphones and (Internet of Things) devices.’”
Strong Q3 Results and a Promising Financial Outlook
Viasat’s Q3 results were significantly negatively affected by the government shutdown in the fall. But its revenue still climbed 3% versus the same period a year earlier, while its backlog rose to $3.97 billion from $3.89 billion as of the end of Q2.
Further, the firm’s operating income rose to $26.3 million from $21.2 million in Q3 of the previous year, while the revenue of its Defense and Advanced Technologies unit came in at $332 million, up from $303 million. Finally, the company’s operating cash flow advanced to $307 million, excluding a one-time item, versus $219 million in the same quarter of the previous year.
And VSAT, whose free cash flow in the 12 months that ended in December was over $200 million, expects its operating cash flow to increase by at least 10% during its current fiscal year and predicts that its free cash flow will be positive during its fiscal 2027.
“We’re focused on growing free cash flow in the years ahead, and using it to retire debt,” Dankberg added. He also noted that the firm is “taking actions…to further improve positive free cash flow in fiscal 2027.”
A Spin Off May Very Well Not Be in the Cards
During the earnings call, Dankberg said, “While many companies are scrambling to vertically integrate, Viasat is arguably one of an extremely short list of companies that has the ingredients needed to offer state-of-the-art technology, broadband and mobility applications, and resilience.”
In other words, he contended that Viasat’s many businesses give it an important edge over the competition. Consequently, I think the odds are high that, although the company is officially still considering spinning off its DAT unit, it will decide not to take the latter step.
Since the shares of spun-off companies have tended to rise tremendously in recent years, VSAT stock may retreat sharply if it does announce that it’s not pursuing a spin off.
The Bottom Line on VSAT Stock
Viasat is currently changing hands at a forward price-earnings ratio of 37.5 times. Given its tremendously powerful, long-term catalysts, I believe that this valuation is very attractive.
And these catalysts should enable the shares to significantly outperform the stock market over the next year and beyond, even if the DAT unit is not spun off.
This article is intended to be informational only; it is not financial advice.
