Gilat Satellite Stock Downdraft is an Opportunity

Cloud-based satellite-based broadband provider Gilat Satellite NASDAQ: GILT stock has fallen over 50% from its 2021 highs set in February 2021. The provider of satellite-based broadband is riding the reopening tailwinds as well the 5G rollout. The global provider sees an improvement of its weakest segment in-Flight Connectivity (IFC) as travel resumes with the acceleration of COVID vaccinations. The airline industry is rebounding in a V-shaped manner as travel volumes resume much faster than analysts anticipated. Gilat is a key benefactor and should see it reflected in its upcoming quarters. Prudent investors seeking a post-pandemic reopening play on the tailwinds of the recovery in airliners and the 5G megatrend can watch for opportunistic pullbacks in shares of Gilat Satellite.   

Q1 FY 2021 Earnings Release

On May 4, 2021, Gilat released its fiscal first-quarter 2021 results for the quarter ending March 2021. The Company reported an earnings-per-share (EPS) loss of (-$0.09) versus a loss of (-$0.03) in the year-ago period. Revenues fell to (-6%) year-over-year (YoY) to $44.7 million compared to $47.7 million in the same quarter a year ago. The effect of weak IFC recovery, less favorable FX rate and higher expenses was the cause of the shortfall. Gilat Satellite CEO Adi Sfadia stated, “We believe that this growth trend will continue during 2021 and expect to show sequential quarterly growth throughout the year and increasing profitability. Looking further out, 2022 is expected to show significant improvement both in revenue and profitability with the pick-up in IFC, Cellular Backhaul and NGSO.” He detailed a new agreement, “As a testament to the strong momentum we are seeing, I am very pleased to report that we entered a mega strategic agreement valued at tens of millions of dollars, including potential for significant project expansions, with a large government corporation in Asia Pacific. I believe that we will see additional large strategic transactions in the near future.” He continued, “In light of the many opportunities we see ahead of us, we are investing significant R&D efforts in order to capture these opportunities and accelerate our future growth. We expect that NGSO, IFC and Cellular Backhaul will be the main market segments that will drive this growth during 2021 and beyond, and we also see strong potential for the defense business to support our growth in a more meaningful way than it has done in the past.”

Conference Call Takeaways

Gilat CEO Sfadia set the tone, “ We have very important projects, mainly in LEO and MEO constellations, in which we are currently investing significant R&D efforts, and which will enable us to have significant revenue in the coming few quarters… As a leading provider for NGSO and VHTS market, we see significant growth potential for Gilat, comprising of hundreds of millions of dollars of market opportunities.” He continued, “We believe that we are well-positioned to win additional NGSO and VHTS business as the opportunities mature. Gilat continued to lead the sale of the backhaul industry and according to a new report by industry analyst NSR, Gilat is the number one vendor in modem shipments with a market share of approximately 40%. According to Gilat analysis based on NSR report, we continue to lead the 4G market with 80% market share. Furthermore, as we reported, Gilat was awarded over $5 million from Tier 1 mobile network operator in Japan for cellular backhaul expansion to quickly provide coverage to rural areas and to support emergency response in case of natural disasters. In addition, we are seeing significant expansion in follow-on orders from our Tier 1 MNOs around the globe, including in Latin America, Europe, Australia, and from leading mobile operators in Japan.”

Opportunities in 5G

CEO Sfadia pointed out the opportunities with 5G, “we view 5G adoption as a market with huge potential for Gilat. The addressable market size is expected to reach more than $300 million per year for satellite equipment only for 4G and 5G cellular backhaul and more than $6 billion a year for satellite equipment and services, including satellite capacity in few years. We believe that the 5G adoption initially in cities will drive significant 4G deployment over satellite backhauling in the suburban and rural areas, where terrestrial coverage is less feasible. At the second stage, 5G deployment of the satellite was spread to rural areas as well entering the promise of universal coverage.”

GILT Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames enables a precision view of the playing field for GILT stock. The weekly rifle chart has been in consolidation but started to fall as the weekly 5-period MA moves lower at $9.95. The weekly stochastic is stalled at the 40-band waiting to form a cross down or a mini pup. The weekly formed a market structure high (MSH) sell trigger under the breakdown below $15.09. The fall under the $10.01 Fibonacci (fib) level may be the start of a downtrend on the weekly. The weekly market structure low (MSL) buy triggered above $8.87, which is a line in the sand for bulls. The daily rifle chart formed a consolidation breakdown with a falling 5-period MA resistance at $9.38 and lower daily BBs at $9.22. The daily stochastic is falling towards the 20-band. Prudent investors can watch for opportunistic pullback levels at the $8.96 fib, $8.32 fib, $8.02 fib, $7.40 fib, $6.49 fib, and the $5.98 fib. Upside trajectories range from the $11.15 fib up towards the $16.32 fib.