Considering all the attention given to iPhones, Blackberries, 4G and other mobile phone topics, investors could be forgiven if they have forgotten that satellite phone systems still existed. Judging by the announcement last week that Iridium Communications (Nasdaq:IRDM) had awarded a major contract to build a new satellite network, the business not only still exists, but has money-making potential ahead of it.

IN PICTURES: 20 Tools For Building Up Your Portfolio

The New Deal
On June 2, the satellite phone operator announced that it had awarded a contract for its Iridium NEXT project to a consortium led by France's Thales. The deal, which could be worth in excess of $3 billion, calls for the construction and launch of 72 low-orbit satellites starting in 2015.

This new satellite network will replace the company's current system, as it is getting a bit long in the tooth. Careful management by Boeing (NYSE:BA) has kept the system better and longer than originally forecast, but the company knows this cannot last forever. Once completed, the NEXT project will continue the company's ability to give 100% global coverage of voice and data, but with higher capacity and quality.

Winners and Losers
Thales won the contract over a competing bid from Lockheed Martin (NYSE:LMT), but the deal will not be kept solely within France and Italy. Thales has already said that as much as 40% of the contract will be sub-contracted to partners like Boeing and Ball Corporation's (NYSE:BLL) Ball Aerospace. It remains to be seen who else might capture some of this business; will Freescale (NYSE:FSL) chips have a place in the satellites now that Motorola (NYSE:MOT) is not running the show? Will Boeing dominate the launch vehicles, or will a company like Orbital Sciences (NYSE:ORB) have a role to play?

Yes, This Is Still a Business
For Iridium at least, this is still is a growth enterprise. The company boasted double-digit subscriber growth last year and has posted an operating profit for many years running.

Satellite telephony will never be a mass market, but that's okay. Australia's Telstra uses the system to supplement its services to remote customers and there is no shortage of remote locations in the world. Other companies like Continental Airlines (NYSE:CAL) contract with Iridium to cover critical gaps in their own communications networks (like polar regions).

The Bottom Line
Iridium's a tough stock to assess right now, though the company's balance sheet is clean and it looks like funding for the NEXT project is workable. Obscure ideas like this can be interesting plays, but perhaps not at a double-digit EV/EBITDA valuation. Orbital Sciences might be the more interesting off-planet idea today, but Iridium is a name to watch for the future.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing News

    Bank Stocks: Time to Buy or Avoid? (WFC, JPM, C)

    Bank stocks have been pounded. Is this the right time to buy or should they be avoided?
  2. Stock Analysis

    Why the Bullish Are Turning Bearish

    Banks are reducing their targets for the S&P 500 for 2016. Here's why.
  3. Stock Analysis

    How to Find Quality Stocks Amid the Wreckage

    Finding companies with good earnings and hitting on all cylinders in this environment, although possible, is not easy.
  4. Investing News

    What You Can Learn from Carl Icahn's Mistakes

    Carl Icahn has been a stellar performer in the investment world for decades, but following his lead these days could be dangerous.
  5. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  6. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  7. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  8. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  9. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  10. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center