Next time you go on a cruise, bring your laptop along. No longer does out to sea mean out of luck. Satellite provider ViaSat (Nasdaq:VSAT) is partially responsible for this breakthrough. Its Yonder mobile broadband network, which it's been developing since 2007 with partner KVH Industries (Nasdaq:KVHI), is now available worldwide in private jets as well as on commercial and private maritime vessels. You'll be able to surf the net at speeds similar to cable broadband. You'll even be able to watch video. That's progress for sure. It has to be one of many reasons Baupost Group's Seth Klarman has taken a 22.1% interest in the company.

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Growth at a Reasonable Price
Forbes ran a slideshow of the 10 companies doing the most hiring right now, and Viasat is one of them. It operates in three segments: Government Systems, Commercial Networks and Satellite Services. In 2009, the combined revenues of the divisions were $688.1 million, up 9.5% from $628.2 million a year earlier. It's not enormous growth by any means, but given the opportunities available in the future, it's plenty. In terms of profits, it generated adjusted EBITDA of $113.8 million, a 38% improvement from 2008. With a backlog of $529 million and contract awards worth $766 million in the development pipeline, revenues and earnings will grow. The question is by how much and for how long.

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ViaSat and Competition
Company

PEG
ViaSat (Nasdaq:VSAT)

 1.75
Hughes Communications (Nasdaq:HUGH)

 6.53
General Dynamics (NYSE:GD)

 1.24
Harris (NYSE:HRS)

 0.67
L-3 Communications (NYSE:LLL)

 1.02
Future Events
Given the table above, it appears Klarman sees hidden value in ViaSat because the valuation ratios often used to evaluate stocks, including the PEG, don't provide a clear-cut case for investing in the company. In fact, its competitors appear to be better GARP candidates. As a value investor, you wouldn't think this would be the type of company he'd want to buy a one-fifth interest, so there has to be something I'm missing. My best guess would be its acquisition of Denver-based WildBlue Communications in December 2009 for $443 million in cash and $125 million in Viasat stock. The satellite broadband service provider has 400,000 customers and currently uses Ka-band capacity on Telesat's Anik F1 satellite. With the acquisition, it gains access to the Ka-band broadband service business more than a year in advance of launching its ViaSat-1 satellite.

ViaSat's satellite services division generated revenues in fiscal 2009 of approximately $8.7 million. One year later, thanks to the Wildblue acquisition, it generated revenues of $75.8 million. Clearly, the satellite services segment will become a more important part of the business in future years. Especially when you consider the potential of its mobile broadband satellite services in rural areas in North America and elsewhere. Klarman obviously believes the gold is hidden in the Ka-band assets. I wouldn't bet against him.


The Bottom Line
While ViaSat doesn't appear to be Baupost Group's usual foray, Seth Klarman is known for doing the unconventional. He wouldn't take such a large position if he didn't see real opportunity in the years ahead. While price is everything to Klarman, in this case it appears opportunity trumps value. (For more, check out Stock-Picking Strategies: GARP Investing.)

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